1.Why did Swatch Group CEO Nick Hayek Jr. have such a strong reaction to the action of the SNB proclaiming that
"Jordan is not only the name of the SNB president, but also a river and today's SNB action is a tsunami"?
2. Explain the difference between the nominal and real exchange rate. Use the excel file accompanying this case to assess the effects of the following scenarios on the stock price of Swatch Group (see picture):
(a) A permanent 10% appreciation of the Swiss franc beginning in 2015.
(b) A permanent 10% appreciation of the Swiss franc beginning in 2015 along with 10% foreign (all other countries) inflation in 2015 (and zero inflation thereafter).
(c) A permanent 10% appreciation of the Swiss franc beginning in 2015 along with 9.1% Swiss deflation in 2015 (and zero inflation thereafter).
(d) No change in the value of the Swiss franc, but 9.1% Swiss deflation in 2015 (and zero inflation thereafter). Based on your calculations above discuss the importance of changes in the nominal and real exchange rate of the Swiss franc on Swatch's stock price.
3. Why did the SNB adopt the ceiling policy in the first place?
4. Use a supply-and-demand diagram of the foreign exchange market for the Swiss franc vs the Euro to explain the policy pursued by the SNB to maintain the ceiling. What was the result of this policy on the Swiss monetary base and money supply?
5. Why do you think the SNB ended the ceiling policy?
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