Beruflich Dokumente
Kultur Dokumente
Financial systems 3
foreign exchange
markets
w w w . s t ud y i n t e r a c t i v e . o r g
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CHAPTER CONTENTS
LEARNING OUTCOMES ------------------------------------------------- 127
FOREIGN EXCHANGE RATES ------------------------------------------- 128
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129
133
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LEARNING OUTCOMES
a) Explain the role of the foreign exchange market and the factors influencing
it, in setting exchange rates.
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Exercise 1
A German firm is due to receive 25,000 from a UK customer. The banks quoted
exchange rate is 1.0650 1.0700.
A
B
C
D
Exercise 2
The current rate of inflation in the UK is 5% and 4% in US. The exchange rate
between the two countries stands at 1.6800 /$. If exchange rates adjust to
maintain purchasing power parity, the exchange rate in one year from now will be
A
1.6961
1.7632
1.7640
1.6650
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o Trade effects
o Portfolio effects
o Speculative effects
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Interest rates
Inflation
Future expectations
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Discussion 1
Complete boxes 2 and 3 below to denote the impact of a domestic currency
ed and
exported goods/services.
Currency appreciation:
1
2
Currency depreciation:
1
2
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