This topic contains a solution. Click here to go to the answer
« previous next »

Author Question: Under fixed exchange rates A) monetary policy is not an effective policy. B) fiscal policy is ... (Read 292 times)

DelorasTo

  • Hero Member
  • *****
  • Posts: 548
on: Jun 30, 2018
Under fixed exchange rates
 
  A) monetary policy is not an effective policy.
  B) fiscal policy is not an effective policy.
  C) monetary policy and fiscal policy are not effective.
  D) both monetary and fiscal policies are effective.
  E) monetary policy has an unpredictable effect on the domestic money supply.

Question 2

Suppose we observe the following 1-year interest rates:
 
  Euro  = 15
   Euro SF = 12
   The exchange rate is quoted as the dollar price of Swiss francs and is currently E = 0.40.
   (a) Given the information above, what is the 12-month forward rate?
   (b) Suppose the actual 12-month forward rate is not what you found from (a), but instead is 0.42. What would profit-seeking arbitrageurs do?


Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by a Subject Expert

Gabe

  • Sr. Member
  • ****
  • Posts: 321
Reply #1 on: Jun 30, 2018
Answer to Question 1

A

Answer to Question 2

(a) .15 - .12 = (F - .40)/.40, F = 0.412.
(b) Since the return to holding franc assets is higher, arbitrageurs buy franc assets and sell dollar assets.


DelorasTo

  • Hero Member
  • *****
  • Posts: 548
Reply #2 on: Jun 30, 2018
Thank you :)


Gabe

  • Sr. Member
  • ****
  • Posts: 321
Reply #3 on: Jun 30, 2018
Happy to help you


« previous next »
 

Did you know?

Ether was used widely for surgeries but became less popular because of its flammability and its tendency to cause vomiting. In England, it was quickly replaced by chloroform, but this agent caused many deaths and lost popularity.

Did you know?

For about 100 years, scientists thought that peptic ulcers were caused by stress, spicy food, and alcohol. Later, researchers added stomach acid to the list of causes and began treating ulcers with antacids. Now it is known that peptic ulcers are predominantly caused by Helicobacter pylori, a spiral-shaped bacterium that normally exist in the stomach.

Did you know?

All patients with hyperparathyroidism will develop osteoporosis. The parathyroid glands maintain blood calcium within the normal range. All patients with this disease will continue to lose calcium from their bones every day, and there is no way to prevent the development of osteoporosis as a result.

Did you know?

Interferon was scarce and expensive until 1980, when the interferon gene was inserted into bacteria using recombinant DNA technology, allowing for mass cultivation and purification from bacterial cultures.

Did you know?

Coca-Cola originally used coca leaves and caffeine from the African kola nut. It was advertised as a therapeutic agent and "pickerupper." Eventually, its formulation was changed, and the coca leaves were removed because of the effects of regulation on cocaine-related products.

Young adults increase in self-esteem between the ages of 18 and 25, according to this longitudinal s Young adults increase in self-esteem between the ages of 18 and 25, according to this longitudinal s
If you want to show differences between items at the same time, a bar graph is more effective than a If you want to show differences between items at the same time, a bar graph is more effective than a
Obesity Rates in United States Obesity Rates in United States
Protein topology and folding rates Protein topology and folding rates
Effective Leadership and Management in Nursing, 9th Edition Effective Leadership and Management in Nursing, 9th Edition
Demographic transition model for changes in population growth rates and sizes, correlated with long- Demographic transition model for changes in population growth rates and sizes, correlated with long-
Video: Causes of Angina

For a complete list of videos, visit our video library