Solutions to Group Assignment #5
1) Suppose that the Fed decreases the supply of money by 10%.
a) In the long run, once all prices have had a chance to adjust, the only
impact will be a 10% drop in the US price level (the long run price level is
Solutions to Group Assignment #6
1) Assume that todays settlement price on a EUR futures contract is $1.3140/EUR.
You have a short position in one contract. Your performance bond account
currently has a balance of $1,700. The next three days
Solutions to Group Assignment #7
1) We have the following regression equation for the annual % change in the British
Pound ( in dollars per pound) standard errors are in parentheses.
%e = .06 + 1.31 * + .84(%e1 ) +
Group Exercise #1
1) Suppose that both the US and Europe are following a gold standard. The price of
gold in the US is pegged at $650/oz while the price of gold in Europe is pegged at
a) Calculate the implied EUR/USD exchange rate.
Group Exercise #2
1) Suppose that the US exports wheat and imports Televisions. For simplicity,
assume that both goods are invoiced in Yen and that the US is too small to
influence global market prices. The global price of a television is Y1
Group Assignment #3
1) Suppose that the U.S. and Mexico produce and consume three goods - computers,
petroleum, and medical care. Computers and petroleum are traded
internationally, but medical care is not. America produces more computers th
Group Assignment #4
1) Suppose that General Electric is anticipating European sales over the next month
to be E 12,500,000. The current EUR/USD exchange rate is 1.2665, but GE is
anticipating the dollar to appreciate. To hedge this risk, GE