Professional Documents
Culture Documents
11th Edition
by Jeff Madura
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4 Exchange Rate Determination
Chapter Objectives
2
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Measuring Exchange Rate Movements
S St 1
Percent in foreign currency value
St 1
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Exchange Rate Equilibrium
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Exhibit 4.2 Demand Schedule for British
Pounds
6
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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Exhibit 4.3 Supply Schedule of British Pounds for
Sale
7
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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Exhibit 4.4 Equilibrium Exchange Rate
Determination
8
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Factors That Influence Exchange Rates
where
e percentage change in the spot rate
INF change in the differential between U.S. inflation
and the foreign country's inflation
INT change in the differential between the U.S. interest rate
and the foreign country's interest rate
INC change in the differential between the U.S. income level
and the foreign country's income level
GC change in government controls
EXP change in expectations of future exchange rates
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Factors That Influence Exchange Rates
Fisher Effect:
Real interest rate Nominal interest rate Inflation rate
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Exhibit 4.5 Impact of Rising U.S. Inflation on the Equilibrium
Value of the British Pound
11
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Exhibit 4.6 Impact of Rising U.S. Interest Rates on the
Equilibrium Value of the British Pound
12
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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Factors That Influence Exchange Rates
14
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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Factors That Influence Exchange Rates
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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Factors that Influence Exchange Rates
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Exhibit 4.8 Summary of How Factors Can Affect
Exchange Rates
17
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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Movements in Cross Exchange Rates
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Exhibit 4.9 Trends in the Pound, Euro, and
Pound/Euro
19
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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Anticipation of Exchange Rate Movements
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SUMMARY (Cont.)
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