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We can use the asset approach to both make predictions about how the market will react to current events and understand how important these events are to investors. Consider the behavior of the Union/Confederate during the Civil

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Use the money market and FX diagrams to answer the following questions about the relationship between the British pound (£) and the U.S. dollar ($). The is in U.S. dollars per British pound, E$/£. We want to

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Both advanced economies and developing countries have experienced a decrease in inflation since the 1980s (see Table 3-3[14-3] in the text). This question considers how the choice of policy regime has influenced this global disinflation. Use the monetary model to

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Table 3-1(14-1) in the text shows the percentage undervaluation or overvaluation in the Big Mac, based on exchange rates in July 2012. Suppose purchasing power parity holds in the long run, so that these deviations would be expected to disappear.

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Consider each of the following goods and services. For each, identify whether the law of one price will hold, and state whether the relative price, q g US/Foreign, is greater than, less than, or equal to 1. Explain your answer

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You are the central banker for a country that is considering the adoption of a new nominal anchor. When you take the position as chairperson, the inflation rate is 4% and your position as the central bank chairperson requires that

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Consider how transactions costs affect foreign currency exchange. Rank each of the following foreign exchanges according to their probable spread (between the “buy at” and “sell for” bilateral exchange rates) and justify your ranking.
a. An American returning from

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Consider a Dutch investor with 1,000 Euros to place in a bank deposit in either the Netherlands or Great Britain. The (one-year) interest rate on bank deposits is 2% in Britain and 4.04% in the Netherlands. The (one-year) forward euro–pound

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a. Compute the percentage change from 2009 to 2010 in the four U.S. bilateral exchange rates (defined as U.S. dollars per unit of foreign exchange, or FX) in the table provided.
b. Use the trade shares as weights to

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Based on the table provided, answer the following questions:
a. Compute the U.S. dollar??yen E$/¥ and the U.S. dollar?? Canadian dollar E$/C$ on June 25, 2010, and June 25, 2009.
b. What