By how much did the nominal value change over the year

Reference no: EM131925237

Question: Suppose the Swiss franc is worth $0.40 at the beginning of the year. During the year, U.S. inflation is 5% and Swiss inflation is 3%.

a) Does economic theory predict an appreciation or a depreciation of the Swiss franc over the year? Why? By how much approximately? Suppose the Swiss franc is worth $0.44 at the end of the year.

b) By how much did the nominal value of the Swiss franc change over the year? Does your answer confirm or disprove the prediction of economic theory?

c) Does your answer in b) imply a change in the competitiveness of Switzerland relative to the United States? Why?

d) Compute the real value of the Swiss franc relative to the U.S. dollar at the end of the year.

e) The real exchange rate at the beginning of the year equals the nominal spot rate. Compute the change in the real value of the Swiss franc over the year.

f) Verify that the real percentage change in the exchange rate (answer d) equals the difference between the nominal percentage change in the exchange rate (answer b) and the inflation rate differential between the two countries.

Reference no: EM131925237

Questions Cloud

Compute the implied ppp exchange rate : For each country, compute the implied PPP exchange rate, the dollar price of the local BigMac and quantify the resulting under/over valuation of the currency.

How long will it take to accumulate : I now have $24,000 in the bank earning interest of .75% per month. I need $34,000 to make a down payment on a house. I can save an additional $100 per month.

Accounting department initial cost-salvage value projections : Suppose you believe that the accounting department’s initial cost and salvage value projections are accurate only to within ±15%

Determine the amount she should deposit the first year : A 25-year old engineer is opening an individual retirement account (RRSP) at a bank. Her goal is to accumulate $1 million in the account by the time.

By how much did the nominal value change over the year : By how much did the nominal value of the Swiss franc change over the year? Does your answer confirm or disprove the prediction of economic theory?

Maximum amount pierre should be willing to pay for bond : If the current market rate is 8.96 percent, what is the maximum amount Pierre should be willing to pay for this bond?

What are best-case and worst-case NPVs : Suppose you feel that the values are accurate to within only ±10 percent. What are the best-case and worst-case NPVs?

How the answer was obtained using financial calculator : A 25-year, $1,000 par value bond has an 7.5% annual coupon. The bond currently sells for $825. If the yield to maturity remains at its current rate.

What is the amount of return on assets : Based on the amounts below, what is the amount of return on assets? What is the amount of total assets?

User Account

All Pages