ADM 3318 Lecture Notes - Lecture 10: High High, Deutsche Mark, Japanese Yen

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violetzebra366

2 Dec 2016

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It is the case for the 4 major trading currencies: us dollar, euro, yen, pound. 10 international institutions and global monetary system: 326-351. International monetary system: the institutional arrangements countries adopt that govern exchange rates. Floating exchange rate: a system under which the exchange rate for converting one currency into another is continuously adjusted depending on the law of supply and demand. Pegged exchange rate: a syste(cid:373) u(cid:374)de(cid:396) (cid:449)hi(cid:272)h the (cid:448)alue of a (cid:272)ou(cid:374)t(cid:396)(cid:455)"s (cid:272)u(cid:396)(cid:396)e(cid:374)(cid:272)(cid:455) is fi(cid:454)ed (cid:396)elati(cid:448)e to a reference currency, and then the exchange rate between that currency and other currencies is determined by the reference currency exchange rate. Dirty float: a s(cid:455)ste(cid:373) u(cid:374)de(cid:396) (cid:449)hi(cid:272)h a (cid:272)ou(cid:374)t(cid:396)(cid:455)"s (cid:272)u(cid:396)(cid:396)e(cid:374)(cid:272)(cid:455) is (cid:374)o(cid:373)i(cid:374)all(cid:455) allo(cid:449)ed to float f(cid:396)eel(cid:455) against other currencies, but in which the government will intervene if it believes the currency has deviated too far from its fair value. The yen has been linked to a basket of other currencies, including the us dollar, yen, and.

Related Questions

Which of the following most accurately describe the operation of the Bretton Woods system of adjustable pegged exchange rates? Check all that apply.

Countries can always reach their domestic stabilization objectives by devaluing their currencies.

A semi-fixed exchange rate system ties currencies to each other to provide stable exchange rates for commercial and financial transactions.

Countries can devalue or revalue its currency so as to restore payments balance.

Adjustable pegged rates enable estimates of the equilibrium rate to which a currency should be re-pegged.

Why do nations use a crawling peg exchange rate system?

To make small but frequent exchange rate adjustments promoting payments balance

To enable short-term volatility and longer-term swings in exchange rates that overshoot values justified by fundamental conditions

To make significant exchange rate adjustments promoting payments balance

To implement par value changes in a small number of large steps

Use the following categorization table to indicate the case for and the case against a system of floating exchange rates.

	For or	Against
It enables continuous adjustments of payments balances.
It reduces the need for international reserves.
It leads to disorderly exchange markets.
It may be inflationary.

byzantiumwolf933

Compute the expected return of a portfolio given these three economic states, their likelihoods, and the potential returns:

Economic State Probability Return

Fast Growth 20.00% 30.00%

Slow Growth 50.00% 6.00%

Recession 30.00% -2.00%

Answer

		8.40%
		11.33%
		12.65%
		15.47%

Compute the standard deviation of a portfolio given these three economic states, their likelihoods, and the potential returns:

Economic State Probability Return

Fast Growth 20.00% 30.00%

Slow Growth 50.00% 6.00%

Recession 30.00% -2.00%

Answer

1.28%

4.36%

7.82%

11.34%

Year-to-date, Company O had earned -2.10% return. During the same time period Company V earned 8.00% and Company M earned 6.25%. If you have a portfolio made up of 40.00% Company O, 30.00% Company V, and 30.00% Company M, what is the overall portfolio return?

Answer

5.778%

4.270%

6.871%

3.435%

Risk that CAN BE eliminated through proper diversification is called _____.

Answer

		market risk
		firm-specific risk
		systematic risk
		non-diversifiable risk

GIVEN: Spot Rate: 1 X = 1.02 Y
30 Day Forward Rate: 1 X = 1.15 Y
Your currency is "X" and you will be paying 345Y. You would ____ because _____.

Answer

		pay now; of the irrelevance of payment time
		pay now; it will take less "X"
		pay in 30 days; it will take less "X"

The amount of one currency needed to purchase one unit of another currency is the _____.

Answer

		derivative rate
		exchange rate
		backwardation rate
		over-the-counter rate

The price of an option is called a(n) _____.

Answer

		expiration cost
		holding cost
		premium
		proceeds

When a futures contract expires, the parties usually _____.

Answer

		have a party when losses are low
		take delivery of the contract asset
		do a cash settlement
		swap off liabilities.

When a forward contract expires, the parties will _____.

Answer

		have a party when losses are low
		deliver the contract asset
		do a cash settlement
		swap off liabilities.

Any asset whose value is derived from the value of some underlying asset is a(n) ____.

Answer

		derivative
		primary capital
		spot asset
		intermediary asset

Which of the following is not traded on an exchange?

Answer

		options
		futures
		forwards
		they are all exchange-traded

A system under which a country's exchange rates are tied to another currency by government policy is _____.

Answer

		floating exchange rates
		pegged exchange rates
		convertible exchange rates
		forward rates

One of the _______ for business with a floating exchange rate system is the _______ planning business activities in an international market.

Answer

		disadvantages; difficulty of
		advantages; easiness of
		irrelevant situations; normal
		none of the above

U.S. dollars deposited in foreign banks are called _____ and interest paid on these deposits is normally tied to _____.

Answer

		non-foreign deposits; FED funds rate
		indirect dollars; Discount Funds Rate
		Eurodollars; LIBOR
		none of the above

____ is a disadvantage of the gold standard.

Answer

		Excess currency slowing economic growth
		Excess inflation
		A non-variable beta
		Lack of currency to promote continued economic expansion

A monetary system in which paper money can be converted directly to gold is a(n) ___.

Answer

		dollar backed float
		gold standard
		currency float
		Americanized gold standard
		none of the above

Reason(s) for the Great Depression following the Great War include:

Answer

		trade protectionism
		isolationism
		nationalism
		all of the above
		none of the above

An agreement between the WW II allies in 1944 designed to prevent the problems leading to the Great Depression and WW II and to rebuild Asia and Europe was the _____.

Answer

		Armistice of 1945
		Bretton Woods Agreement
		Lend Lease Act for Asia and Europe
		none of the above

A derivative is used to ____ thereby _____.

Answer

		float; gaining excess currency for expansion
		peg currency; improving trade with a primary partner
		hedge; reducing/eliminating risk
		none of the above

Easier business planning is an advantage of the ______ system.

Answer

		mixed exchange rate
		floating exchange rate
		derivative exchange rate
		gold standard
		none of the above

____ is the chance that some unfavorable event will occur.

Answer

		Expected return
		Risk
		Coefficient of variation
		Correlation

raspberrycicada573

Compute the expected return of a portfolio given these three economic states, their likelihoods, and the potential returns:

Economic State Probability Return

Fast Growth 20.00% 30.00%

Slow Growth 50.00% 6.00%

Recession 30.00% -2.00%

Answer

		8.40%
		11.33%
		12.65%
		15.47%

Compute the standard deviation of a portfolio given these three economic states, their likelihoods, and the potential returns:

Economic State Probability Return

Fast Growth 20.00% 30.00%

Slow Growth 50.00% 6.00%

Recession 30.00% -2.00%

Answer

		1.28%
		4.36%
		7.82%
		11.34%

Year-to-date, Company O had earned -2.10% return. During the same time period Company V earned 8.00% and Company M earned 6.25%. If you have a portfolio made up of 40.00% Company O, 30.00% Company V, and 30.00% Company M, what is the overall portfolio return?

Answer

		5.778%
		4.270%
		6.871%
		3.435%

Risk that CAN BE eliminated through proper diversification is called _____.

Answer

		market risk
		firm-specific risk
		systematic risk
		non-diversifiable risk

GIVEN: Spot Rate: 1 X = 1.02 Y
30 Day Forward Rate: 1 X = 1.15 Y
Your currency is "X" and you will be paying 345Y. You would ____ because _____.

Answer

		pay now; of the irrelevance of payment time
		pay now; it will take less "X"
		pay in 30 days; it will take less "X"

The amount of one currency needed to purchase one unit of another currency is the _____.

Answer

		derivative rate
		exchange rate
		backwardation rate
		over-the-counter rate

The price of an option is called a(n) _____.

Answer

		expiration cost
		holding cost
		premium
		proceeds

When a futures contract expires, the parties usually _____.

Answer

		have a party when losses are low
		take delivery of the contract asset
		do a cash settlement
		swap off liabilities.

When a forward contract expires, the parties will _____.

Answer

		have a party when losses are low
		deliver the contract asset
		do a cash settlement
		swap off liabilities.

Any asset whose value is derived from the value of some underlying asset is a(n) ____.

Answer

		derivative
		primary capital
		spot asset
		intermediary asset

Which of the following is not traded on an exchange?

Answer

		options
		futures
		forwards
		they are all exchange-traded

A system under which a country's exchange rates are tied to another currency by government policy is _____.

Answer

		floating exchange rates
		pegged exchange rates
		convertible exchange rates
		forward rates

One of the _______ for business with a floating exchange rate system is the _______ planning business activities in an international market.

Answer

		disadvantages; difficulty of
		advantages; easiness of
		irrelevant situations; normal
		none of the above

U.S. dollars deposited in foreign banks are called _____ and interest paid on these deposits is normally tied to _____.

Answer

		non-foreign deposits; FED funds rate
		indirect dollars; Discount Funds Rate
		Eurodollars; LIBOR
		none of the above

____ is a disadvantage of the gold standard.

Answer

		Excess currency slowing economic growth
		Excess inflation
		A non-variable beta
		Lack of currency to promote continued economic expansion

A monetary system in which paper money can be converted directly to gold is a(n) ___.

Answer

		dollar backed float
		gold standard
		currency float
		Americanized gold standard
		none of the above

Reason(s) for the Great Depression following the Great War include:

Answer

		trade protectionism
		isolationism
		nationalism
		all of the above
		none of the above

An agreement between the WW II allies in 1944 designed to prevent the problems leading to the Great Depression and WW II and to rebuild Asia and Europe was the _____.

Answer

		Armistice of 1945
		Bretton Woods Agreement
		Lend Lease Act for Asia and Europe
		none of the above

A derivative is used to ____ thereby _____.

Answer

		float; gaining excess currency for expansion
		peg currency; improving trade with a primary partner
		hedge; reducing/eliminating risk
		none of the above

Easier business planning is an advantage of the ______ system.

Answer

		mixed exchange rate
		floating exchange rate
		derivative exchange rate
		gold standard
		none of the above

____ is the chance that some unfavorable event will occur.

Answer

		Expected return
		Risk
		Coefficient of variation
		Correlation

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ADM 3318 Lecture Notes - Lecture 10: High High, Deutsche Mark, Japanese Yen

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