Chapter 5

An appreciating dollar implies a lower value of euro

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option markets to hedge the declining cash flow from their export sales receipts. An appreciating dollar implies a lower value of Euro or Yen that implies a profit on the short position that can purchase foreign currency at declining prices for delivery on fixed strike price contracts. Cummins could also have entered into a currency swap contract that makes money as the dollar appreciates and export sales receipts decline 7. If Boeing’s dollar aircraft prices increase 20 percent and the yen/dollar exchange rate declines 15 percent, what effective price increase is facing Japan Air Lines for the purchase of a Boeing 747? Would Boeing’s margin likely rise or fall if the yen then depreciated and competitor prices were unchanged? Why? Japan Air Lines faces a 5% effective increase in Yen prices. If the Yen then began to depreciate, this would put downward pressure on Boeing margins. Boeing would be forced to reduce margins to keep the Yen price of 747s from rising. Unchanged Yen prices by a Japanese competitor would increase this downward pressure on Boeing margins. 9. If unit labor costs in Spain and Portugal rise, but unit labor costs in Germany decline and other producer prices remain unchanged, what effect should these factors, by themselves, have on export trade, and why? Lower unit labor cost and producer prices in Germany implies an increase in German exports
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Myisha Coleman 1 to Spain and Portugal and a decline in Spanish and Portuguese exports to Germany 10. What three factors determine whether two economies with separate fiscal and monetary authorities should form a currency union? Give an illustration of each factor using NAFTA economies. A single monetary authority with a common currency is more appropriate (1) across multiple countries when trade flows are extensive (e.g., between Mexico and the U.S.), (2) when labor is mobile (i.e., between Canada and the U.S.), and (3) when macroeconomic shocks are very highly correlated. Not all three apply to NAFTA, as Mexico is very sensitive to oil price shocks but Canada is not, and the U.S. is somewhere in between .
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An appreciating dollar implies a lower value of Euro or Yen...

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