Disadvantages of fixed versus floating exchange rates

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1- Suppose the current spot exchange rates are $1.15/€, and $1.25/£. Suppose also that a dealer quotes you €1.18/. Is there a triangular arbitrage opportunity? Calculate your profit for $1M. starting amount.

2- Briefly discuss advantages and disadvantages of fixed versus floating exchange rates.

3- “If a country employs a currency board, all monetary policy is on autopilot”. Explain this statement

4- What are the macroeconomic impacts of exchange rate appreciations/depreciations?

5- What is the main difference between direct and indirect interventions in foreign exchange markets?

6- Currently the spot exchange rate is $1.50/£ and the three-month forward exchange rate is $1.52/£. The three-month interest rate is 8.0% per annum in the US and 5.8% per annum in the UK. Assume that you can borrow as much as $1M. or £1M. How will the covered interest rate parity be restored?

Reference no: EM131993034

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