SISU-105 FA3 Lecture Notes - Lecture 8: Capital Account, Special Drawing Rights, Foreign Direct Investment

80 views2 pages

harlequinreindeer756

25 Apr 2017

School

American University

Department

SISU - INT'L SERVICE UNDERGRADUATE

Course

SISU-105 FA3

Professor

Tuomi

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Govt-105 - lecture note - money and the currency system. An exchange rate is the rate/price at which currencies are traded it depends on the type of currency system: fixed, pure floating, or managed floating. Currencies are traded in the international currency markets. Players in the world of international money markets: Central banks: control money supply through reserve rules, bond sales/purchases, and discount rates. *inverse relationship between bond price and interest rates. Raise reserve ratio, sells bonds, raises discount rate to decrease inflation. If the fed wants to raise interest rates it sells bonds. In a recession, the fed buys bonds in order to raise employment. Industrial revolution expanded in tandem with free trade. After the great depression, keynesian economics took precedence. After wwii, more liberal approach in the west under us leadership (world bank, Much of the east remained centrally planned.

Related Questions

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

pucedolphin819

51.The Fed is conducting expansionary monetary policy if it:

A increases the discount rate, buys bonds, and sets a lower target for the federal funds rate.

B decreases the discount rate and sells bonds.

C sets a lower target for the federal funds rate and buys bonds in the open market.

D increases reserve requirements and buys bonds in the open market.

E buys bonds in the open market and raises the discount rate.

52.If banks become concerned about future conditions and decide to hold larger excess reserves, which of the following is a likely result?

A A rise in interest rates

B An increase in bond prices

C An increase in aggregate demand

D An increase in the money supply

E Both C and D

53.The Fed is under no obligation to coordinate its actions with fiscal policy. And in fact, the Fed may take actions specifically designed to counteract some piece of fiscal policy. An example of fiscal and monetary policies with opposite effects is:

A an increase in taxes and increased sales of bonds by the Fed.

B a decrease in government spending and an increase in the discount rate.

C a decrease in taxes and a decrease in the target for the federal funds rate.

D an increase in government spending and an increase in reserve requirements.

E a decrease in taxes and increased purchases of bonds by the Fed.

54.In the fictitious nation of Zagora, a worker can produce either 5 books or 10 televisions in an hour. In neighboring Plovdiv, a worker can produce either 3 books or 5 televisions in an hour. Which statement about this situation is true?

A Zagora has comparative advantage in the production of books.

B Zagora has comparative advantage in the production of televisions.

C Workers in Plovdiv canât possibly compete against the super-productive workers in Zagora.

D Workers in Zagora canât be expected to compete against the low-wage workers in Plovdiv.

E None of the above

55.Given the U.S. has a current account deficit, a large increase in the demand for U.S. computer programs among Japanese residents will have all the following effects except:

A an increase in the exchange rate, expressed in yen per dollar.

B an increase in the U.S. capital account surplus.

C an increase in investment in Japan.

D an decrease in the U.S. trade deficit.

E It may have all the above effects.

56.Fiscal policy affects exchange rates because:

A as government spending increases, the government must buy more and more goods and services from foreign countries.

B as government debt increases, interest rates rise, and the value of the currency rises.

C as government debt increases, interest rates rise, and the value of the currency falls.

D as the money supply increases, interest rates fall, and the value of the currency rises.

E as the money supply increases, interest rates fall, and the value of the currency falls.

57.There are many kinds of trade restrictions, and trade restrictions are put into place for many reasons. Which of the following is not a reason to use trade restrictions?

A To save natural habitats from over-use

B To protect the jobs of workers in certain industries

C To make a political statement regarding the labor policies of another nation

D To compensate for higher taxes placed on domestic producers

E To create a lower prices for domestic consumers

58.If the value of the U.S. dollar in foreign exchange markets rises:

A U.S. exports will become relatively less expensive.

B capital inflows into the United States will increase.

C people in the U.S. will purchase fewer imports.

D U.S. exports will likely decrease.

E All of the above

59.Saying that leakages equal injections give the equation:

A T + S + X = G + I + M

B Y = C + S + T

C Y = C + I + G + X - M

D T + S + M = C + G + I + X

E T + S + M = G + I + X

harlequinleopard136

SISU-105 FA3 Lecture Notes - Lecture 8: Capital Account, Special Drawing Rights, Foreign Direct Investment

Document Summary

Get access

Related Documents

POSC 3250 Lecture Notes - Lecture 7: Reserve Currency, Canadian Dollar, Capital Control

MGMT1101 Lecture Notes - Lecture 8: Impossible Trinity, Currency Board, Financial Statement

POLI 12 Chapter Notes - Chapter 383-413: Deutsche Mark, William Jennings Bryan, Eurozone

Related Questions