Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Macroeconomics Expert

problem 1: Each of the given statements has been put forward as a description of determinants of exchange rate:

a) Increase in the value of a currency is since rates of interest in that country have risen relative to those in the rest of the world.

b) Decrease in the value of a currency is since rates of interest in that country have risen relative to those in the rest of the world.

Describe and reconcile these two statements, by using diagrammatic and numerical ex where suitable.

problem 2: Read the given case study carefully and answer the following problems:

The Australian dollar hugged a tight range yesterday as global investors reconsidered their bearish stance on US dollar after a display of some stability in offshore equity markets.

The AUD closed local trading US 56.29 cents, down slightly from Friday’s close of US 56.35 cents.

The Australian dollar will remain hostage to global events and will as well take its cue from a batch of economic data to be released in the US this week. ANZ Investment Bank’s senior foreign exchange dealer, Paul McNee, state: ‘The marker will have one eye on the US economy, which is showing signs of strength, and the other eye on the Dow, which is showing some signs of stability. But the tensions in Iraq have tightened a notch and that is not good for a global commodity currency like the Australian dollar. Overall, traders are expecting the local currency to trade between US 55.5 cents and US 57.5 cents up until the end of the year, so there will be a lot of activity to protect those levels.’

In light trading yesterday, the US dollar continued to make modest gains against the yen and the euro. Speculation about another fiscal package in Japan, the paralyzing amount of bad-loan provisions in the Japanese banking sector and a 2 per cent slide in the Nikkei resulted in the US dollar edging higher. The euro was lower on the day, fuelled by speculation that the European Central Bank will cut official interest rates on December 5.

At the close of the local trading session, the euro was USD 1.0103.

A research report issued by JP Morgan yesterday highlighted the wide interest rate differential between Australia and the US and predicted this gap would drive the local dollar to US 63 cents by the end of 2003. This gap now stands at 350 basis points.

Source: Baker, P., Australian Financial Review, 19 November 2002

a) What are the significant issues identified in the above article that are having an impact on uncertainty in the global foreign exchange markets?

b) Is it correct, as recommended by a senior foreign exchange dealer, that the foreign exchange has its eyes firmly fixed on the data coming out of the US markets? Why is it so?

c) Why might the JP Morgan report consider the large Australian-US interest rate differential as an indicator that the AUD will appreciate?

Macroeconomics, Economics

  • Category:- Macroeconomics
  • Reference No.:- M95892

Have any Question? 


Related Questions in Macroeconomics

How would a keynesian economist use fiscal policy to fix a

How would a Keynesian economist use fiscal policy to fix a recession? How would a Keynesian economist use fiscal policy to fix an inflation?

Samnbspruns a shoeshine standnbspat the airport samnbsphas

Sam runs a shoeshine stand at the airport. Sam has no skills, no job experience, and no alternative employment.Entrepreneurs in the shoeshine stand business earn $12,000 a year. Sam pays the rent of $1,500 a year, and hi ...

You are told that 50 cents out of every dollar pumped into

You are told that 50 cents out of every dollar pumped into the economy goes toward consumption (as opposed to saving). Estimate the GDP impact of a positive change in government spending that equals $15 billion.

Assume that the bank holds no excess reserves and that the

Assume that the bank holds no excess reserves and that the required  reserve ratio  equals 10% of deposits. If a customer deposits $5,000, what would be the total increase in checking account balances throughout all bank ...

Explain why the kinked demand curve model of oligopoly

Explain why the "kinked demand curve" model of oligopoly represents a game theory approach to oligopolistic behavior.

200-300-word response to the followingprovide an evidence

200-300-word response to the following Provide an evidence of diminishing marginal productivity inaction from your workplace or organization that you are familiar with. Might diminishing marginal productivity affect the ...

1 a suppose the domestic and foreign interest rates are

1. a. Suppose the domestic and foreign interest rates are both initially equal to 4%. Now suppose the foreign interest rate rises to 6%. Explain what effect this will have on the exchange rate. Also explain what must occ ...

This question basically asks you to compare the net present

This question basically asks you to compare the Net Present Value (NPV) to the Internal Rate of return (IRR) on the time length of an investment project. a. Draw a "growth curve" for a investment project on a log P V t s ...

Purposethe purpose of the term paper is to give you an

Purpose The purpose of the term paper is to give you an opportunity to apply the economic concepts, principles, tools, and models that we have and will examine in this course to interpret current macroeconomic events. Yo ...

1 part a evaluate the fundamental arguments between

1. (Part A) Evaluate the fundamental arguments between Keynesians and Monetarists concerning the level of government involvement in our economy to minimize the impact and stabilize the different stages of the business cy ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro