🏷️ LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION →
Log in
Economics
1
answer
0
watching
181
views
21 Oct 2020

If a bank in Thailand has taken a loan in US dollars, what will happen if the baht depreciates rapidly?

Booster class
Macroeconomics
Skill
Foreign Exchange
Watch
1
answer
0
watching
181
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Darryn D'Souza
Darryn D'SouzaLv10
21 Oct 2020

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related textbook solutions

Principles of Economics
2nd Edition, 2017
Openstax
ISBN: 9781947172364
Principles of Macroeconomics
2 Edition,
Openstax
ISBN: 9781947172388
Principles of Microeconomics
2 Edition,
Openstax
ISBN: 9781947172340

Related questions

Assessment of Future Exchange Rate Movements

As the chief financial officer of Blades, Inc., Ben Holt is

pleased that his current system of exporting “Speedos”

to Thailand seems to be working well. Blades’ primary

customer in Thailand, a retailer called Entertainment

Products, has committed itself to purchasing a fixed

number of Speedos annually for the next 3 years at a

fixed price denominated in baht, Thailand’s currency.

Furthermore, Blades is using a Thai supplier for some

of the components needed to manufacture Speedos.

Nevertheless, Holt is concerned about recent developments

in Asia. Foreign investors from various countries

had invested heavily in Thailand to take advantage of

the high interest rates there. As a result of the weak

economy in Thailand, however, many foreign investors

have lost confidence in Thailand and have withdrawn

their funds.

Holt has two major concerns regarding these developments.

First, he is wondering how these changes in

Thailand’s economy could affect the value of the Thai

baht and, consequently, Blades. More specifically, he is

wondering whether the effects on the Thai baht may

affect Blades even though its primary Thai customer

is committed to Blades over the next 3 years.

Second, Holt believes that Blades may be able to

speculate on the anticipated movement of the baht, but

he is uncertain about the procedure needed to accomplish

this. To facilitate Holt’s understanding of exchange

rate speculation, he has asked you, Blades’ financial analyst,

to provide him with detailed illustrations of two

scenarios. In the first, the baht would move from a current

level of $.022 to $.020 within the next 30 days.

Under the second scenario, the baht would move from

its current level to $.025 within the next 30 days.

Based on Holt’s needs, he has provided you with the

following list of questions to be answered:

1. How are percentage changes in a currency’s value

measured? Illustrate your answer numerically by

assuming a change in the Thai baht’s value from a

value of $.022 to $.026.

2. What are the basic factors that determine the value

of a currency? In equilibrium, what is the relationship

between these factors?

5. Assume that Thailand’s central bank wishes to

prevent a withdrawal of funds from its country in order

to prevent further changes in the currency’s value. How

could it accomplish this objective using interest rates

3.Assume two countries, Thailand (T) and Japan (J), have one good: cameras. The demand (d) and supply (s) for cameras in Thailand and Japan is described by the following functions:

Qd(T)= 60 - P
Qs(T)= - 5 +1/4 P
Qd(J)= 80 - P
Qs(J)= - 10 + 1/2 P

P is the price measured in a common currency used in both countries, such as the Thai
Baht.
3-1)Compute the equilibrium price (P) and quantities (Q) in each country without trade.
3-2)Now assume that free trade occurs. The free-trade price goes to 56.36 Baht. Who exports and imports cameras and in what quantities?

If the dollar price of the yen rises then

a)the yen price of dollars also rises.
b)the dollar depreciates relative to the yen.
c)the yen depreciates relative to the dollar.
d)the dollar will buy fewer U.S. goods.

Weekly leaderboard

Home
Homework Help 3,900,000
Economics 400,000
Start filling in the gaps now
Log in