ECON216_Spring2011_Tutorials_Ch_11_and_12_questions_with_Solution

ECON216_Spring2011_Tutorials_Ch_11_and_12_questions_with_Solution

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ECON216 Chapter 11, 12 and 13 Questions 1. Assume that SR=$2/£1 and the three-month FR=$1.96/£1. How can an importer who will have to pay £10,000 in three months hedge the foreign exchange risk? The importer would have to purchase forward £10,000 pounds for delivery in three months at today's FR=$1.96/£1. After three months (and regardless of what the spot rate is at that time), the importer would pay $19,600 and obtain the £10,000 he needs to make the payment. 2. For the given in Problem 1, indicate how an exporter who expects to receive a payment of £1 million in three months can hedge the foreign exchange risk. The exporter would have to sell forward £1 million for delivery in three months at today’s FR=$1.96/£1. After three months, the exporter will deliver the £1 million and receive $1,960,000. Chapter 12 1. (a). Explain what is the effect on the exchange rate of an increase in the nation’s money supply according to the asset market or portfolio approach.
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This note was uploaded on 03/19/2012 for the course ECON 215 taught by Professor Rodgers during the Three '08 term at University of Wollongong, Australia.

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ECON216_Spring2011_Tutorials_Ch_11_and_12_questions_with_Solution

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