351 winter 2011 final 3

A foreigndollarconstant b foreigndollarhigher c

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Unformatted text preview: ithin the United States, the U. S. dollar ________ because demand for U.S. assets ________. A) depreciated; increased B) appreciated; increased C) depreciated; decreased D) appreciated; decreased 15) When Canadians or foreigners expect the return on ________ assets to be high relative to the return on ________ assets, there is a ________ demand for dollar assets, everything else held constant. A) foreign; dollar; constant B) foreign; dollar; higher C) dollar; foreign; constant D) dollar; foreign; higher 3 PART 2. ANSWER ALL QUESTIONS (Total 70 marks; 10 marks each). Record your answers in the spaces provided below. 1. Given the most recent financial crises (2007‐2009), list the new regulations that are being proposed that would help prevent this from happening again. 4 2. What are the main items in a bank's asset side of the balance sheet? Discuss them briefly. 5 3. Your bank has the following balance sheet Assets Rate-sensitive $100 million Fixed-rate 100 million Liabilities Rate-sensitive $75 million Fixed-rate 125 million What would happen to bank profits if the interest rates in the economy go down? Is there anything that you could do to keep your bank from being so vulnerable to interest rate movements? 6 4. Explain why the bank rate is an upper limit for the overnight rate. Also, explain why the bank rate minus 50 basis points (ib-50) is the lower limit for the overnight rate. 7 5. Provide an explanation of the exchange rate overshooting phenomenon. 8 6. Why are exchange rates so volatile? 9 7. Explain and demonstrate graphically how an unsterilized purchase of foreign assets leads to overshooting of the exchange rate, and describe the long-run behavior of the exchange rate, everything else held constant. 10...
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This note was uploaded on 11/29/2011 for the course ECO 349 taught by Professor H during the Summer '09 term at University of Toronto.

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