International Finance Essay Sample

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A. A high home inflation rate could cause a current account a deficit since it results to decrease exports and increase imports.
2-12-a: U.S.-based MNCs commonly invest in foreign securities. Assume that the dollar is presently weak and is expected to strengthen over time. How will these expectations affect the tendency of U.S. investors to invest in foreign securities?

A. This expectations of a strong dollar would discourage U.S. investors from investing abroad, The other way, There has been an increased tendency that Japan investors invest in foreign securities due to strong Yen.

2-13-a: Explain why a stronger dollar could enlarge the U.S. balance of trade deficit. Explain why a weaker dollar could affect the U.S. balance of trade deficit.

A. A stronger dollar makes U.S. goods less attractive to foreign importers due to expensive price to purchase and it may reduce U.S. exports. The other way, U.S. imports will be more attractive to U.S. exporters due to cheap price to purchase foreign goods and may increase U.S. imports. And this trade imbalance will result trade deficit. And a weaker home currency increases the prices of imports purchased by the home country and reduces the prices paid by foreign businesses for the home country’s exports. This should cause a decrease in the home country’s demand for imports and an increase in the foreign demand for the home country’s exports, and therefore increase the current

3-3-4: Explain how the appreciation of the Japanese yen against the U.S. dollar would affect the return to a U.S. firm that borrowed Japanese yen and used the proceeds for a U.S. project. A. When U.S. firm to return borrowed Japanese yen, exchange rate to convert yen to dollar will be lower and cost of borrowing will be higher as a result of this appreciation.

3-3-6: Utah Bank’s bid price for Canadian dollars is $.7938 and its ask price is $.81. What is the bid/ask percentage spread? A. Bid / Ask percentage spread 0 .0162 0 .8019 100 2 .02

3-3-8: The Wolfpack Corporation is a U.S. exporter that invoices its exports to the United Kingdom in British pounds. If it expects that the pound will appreciate against the dollar in the future, should it hedge its exports with a forward contract? Explain. A. They should not hedge because it would benefit from appreciation of the pound when it converts the pounds to dollars.

3-3-10: If the direct exchange rate of the euro is worth $1.25, what is the indirect rate of the euro? That is, what is the value of a dollar in Euros? A. 1/1.25 = .8 Euros.
3-3-11: Assume Poland’s currency (the zloty) is worth $.17 and the Japanese yen is worth $.008. What is the cross rate of the zloty with respect to yen? That is, how many yen equal a zloty? A. $.17/$.008 = 21.25

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