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Assignment 3

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24 views4 pages

Assignment 3

Uploaded by

Haripur Da malang
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Assignment 3

International financial market


Here are the answers:

*Effects of September 11*

Why do you think the terrorist attack on the United States was
expected to cause a decline in U.S. interest rates?

Answer: The attack was expected to lead to a decline in economic


activity, reduced consumer spending, and lower demand for credit,
resulting in lower interest rates.

Given the expectations for a decline in U.S. interest rates and stock
prices, how were capital flows between the United States and other
countries likely affected?

Answer: Capital flows were likely to move out of the U.S. and into
other countries, seeking higher returns, leading to a depreciation of
the U.S. dollar.

*International Financial Markets*


a. Explain how the Wal-Mart outlets in China would use the spot
market in foreign exchange.

Answer: Wal-Mart would use the spot market to convert Chinese


yuan (RMB) into US dollars to repatriate earnings back to the United
States.

b. Explain how Wal-Mart might utilize the international money


markets when it is establishing other Wal-Mart stores in Asia.

Answer: Wal-Mart might borrow funds in local currencies (e.g., yuan


or other Asian currencies) to finance new store establishments,
reducing the need to convert funds from US dollars.

c. Explain how Wal-Mart could use the international bond market to


finance the establishment of new outlets in foreign markets.

Answer: Wal-Mart could issue international bonds denominated in


local currencies (e.g., yuan or other Asian currencies) to raise funds
for new store establishments, reducing exchange rate risk and
interest rate risk.

*Interest Rates*
Why do interest rates vary among countries?

Answer: Interest rates vary due to differences in inflation rates,


economic growth, political stability, and monetary policies.

Why are interest rates normally similar for those European countries
that use the euro as their currency?

Answer: Interest rates are similar because they share a common


currency and monetary policy, set by the European Central Bank.

Offer a reason why the government interest rate of one country


could be slightly higher than the government interest rate of another
country, even though the euro is the currency used in both
countries.

Answer: The reason could be differences in credit risk, liquidity, and


market conditions between the two countries.

*Interpreting Exchange Rate Quotations*

You need to purchase 100,000 Canadian dollars with U.S. dollars.


How many U.S. dollars will you need for your purchase?
Answer:

- 100,000 CAD x (1 CAD / 0.50 ARS) = 200,000 ARS (Argentine pesos)


- 200,000 ARS / 3.00 ARS/USD = 66,667 USD

So, you would need approximately 66,667 US dollars to purchase


100,000 Canadian dollars.

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