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Author Question: Which of the following is a Eurodollar claim? A) A U.S.-dollar deposit by a London firm in a ... (Read 32 times)

fnuegbu

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on: Jun 30, 2018
Which of the following is a Eurodollar claim?
 
  A) A U.S.-dollar deposit by a London firm in a Kansas City bank
  B) A Swiss-franc deposit by a German firm in a Swiss bank
  C) A U.S.-dollar deposit by a New York firm in a London bank
  D) A Canadian-dollar deposit by a London firm in a Toronto bank

Question 2

Explain why the interest parity condition must hold if the foreign exchange market is in equilibrium.
 
  What will be an ideal response?


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mirabriestensky

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Reply #1 on: Jun 30, 2018
Answer to Question 1

C

Answer to Question 2

The foreign exchange market is in equilibrium when deposits of all currencies offer the same expected rate of return. Potential holders of foreign currency deposits view them all as equally desirable assets. If expected rate of return on any currency deposit is higher or lower than the other, there will exist an excess supply or demand for that currency because one will yield a higher return than the other.


fnuegbu

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Reply #2 on: Jun 30, 2018
Thank you :)


mirabriestensky

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Reply #3 on: Jun 30, 2018
Happy to help you


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