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Unformatted text preview: Course Business- Forex Worksheet Part I due in Discussion Section this week- Midterm on Monday, October 24 at 7:15 p.m. - Room locations to be announced- Will cover lecture material through October 19- 75 minute exam- About 60 questions- Mostly Multiple Choice questions- A few True/False questions- A few Short Answer/Short Essay questions- More information on Wednesday and next week Finish Slides from Currency Introduction Lecture Price and Exchange Rates- Law of One Price:- In competitive markets free of transportation costs and trade barriers, identical products sold in different countries must sell for the same price when their price is expressed in terms of the same currency.- Example: US/Euro exchange rate: $1 = .6 euro. A jacket selling for $100 in New York should retail for 60 euros in Paris.- Purchasing Power Parity- By comparing the prices of identical products in different currencies, it should be possible to determine the real or PPP exchange rate - if markets were efcient.- In relatively efcient markets (few impediments to trade and investment) then a basket of goods should be roughly equivalent in each country. Big Mac Index- What does Big Mac Index tell us about the exchange rate based on Law of One Price/Purchasing Power Parity? - Big Mac in U.S. about $2.50- Big Mac in China about 10 RMB- Implied exchange rate should be: $1= 4 RMB- Actual exchange rate is about $1= 6.60 RMB International Monetary System Agenda- Exchange rate regimes and monetary systems- Historical development- Role of the IMF and World Bank- Implications for managers Facets of monetary systems- Convertibility - Exchange rate regimes- Reserve asset- Gold- U.S. dollar and/or other hard currencies- SDRs Currency Exchange Controls- Currency exchange controls- Government controls that limit the legal uses of a currency in international transactions- In general, only the relatively rich industrial countries have few or no currency exchange controls- Methods of control:- Ofcial exchange rates- Convertibility restrictions Currency Convertibility...
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- Fall '11