FIN 535 Week 2 Homework 19499

Chapter 2, Question #2  Inflation  Effect on Trade

 

a.)     How would a relatively high home inflation rate affect the home country’s current account, other things being equal?

 

b.)    Is a negative current account harmful to a country? Discuss.

 

Question # 5  Exchange Rate Effect on Trade Balance

 

                Would the U.S. balance-of-trade deficit be larger or smaller if the dollar depreciates against all currencies, versus depreciating against some currencies but appreciating against others?  Explain.

 

Chapter 3, Question #24  Interpreting Exchange Rate Quotations

 

                Today you notice the following exchange rate quotations: (a)  $1=3.00 Argentine pesos and (b) 1 Argentine peso = .50 Canadian dollars.  You need to purchase 100,000 Canadian dollars with U.S. dollars.  How much U.S. dollars will you need for your purchase?

 

Question #25  Pricing ADRs

 

                Today, the stock price of Genevo Co. (based in Switzerland) is priced at SF80 per share.  The spot rate of the Swiss franc (SF) is $.70.  During the next year, you expect that the stock price of Genevo Co. will decline by 3 percent.  You also expect that the Swiss franc will depreciate against the U.S. dollar by 8 percent during the next year.  You own American depository receipts (APRs) that represent Genevo stock.  Each share that you own represents one share of the stock traded on the Swiss stock exchange.  What is the estimated value of the ADR per share in 1 year?