Exchange rate between the franc and the euro

Assignment Help Financial Management

Reference no: EM131302932

In August 2010, an article in Bloomberg Businessweek reported: "Facing a (Swiss) franc surge that threatened to derail the economy, the Swiss National Bank (SNB) has quadrupled its foreign exchange holdings since March 2009 to slow the currency's advance and protect exporters."

The Swiss National Bank had been particularly concerned with the appreciation of the franc against the euro, with the exchange rate having risen from more than 1.5 francs to the euro in November 2009 to 1.3 francs to the euro in August 2010.

a. How would slowing the Swiss franc's advance-that is, its appreciation-protect exporters?

b. How would the quadrupling of the Swiss National Bank's foreign exchange holdings affect the demand and supply for Swiss francs and the exchange rate between the franc and the euro? Use a graph to illustrate your answer.

c. The article cited here went on to state: "The new quandary for the central bank is when to start raising borrowing costs. While keeping the benchmark interest rate at the current level of 0.25 percent for too long may spark domestic inflation, increasing it may . . . hurt exporters." Why would increasing the benchmark interest rate hurt Swiss exporters?

Reference no: EM131302932

Questions Cloud

Intend to hedge a floating rate payment : You intend to hedge a floating rate payment on a $50 Million notional with a reset date of 3/18/2015 and payment date of 6/20/2015. The interest rate of the payment will equal 3 month LIBOR as of 3/18/2015. You short 50 EDH5 contracts at 99.25. What ..

Explain what is happening in your graph : Use a graph showing the demand and supply of yen in exchange for dollars to show the effect on the exchange rate between the yen and the dollar. Briefly explain what is happening in your graph.

What is present value of the savings : Your company will generate 577,000 in annual revenue each year for the next seven years from a new information database. If the appropriate interest rate is 6.75 percent, what is the present value of the savings?

Receives amount equivalent to the payments : Three sisters inherit $1,900,000. Sister 1 receives an amount equivalent to the payments of $35,000 at the end of each year forever. Sister 2 receives $80,000 at the end of each year for the next 4 years. Sister 3 receives the rest of the $1,900,000 ..

Exchange rate between the franc and the euro : How would the quadrupling of the Swiss National Bank's foreign exchange holdings affect the demand and supply for Swiss francs and the exchange rate between the franc and the euro?

Using the chaining method : A stock model has parameters u = 2.0, d = 0.5, S0 = 16. A European call option, expiring at T = 4, has strike price X = 20. The interest rate is r = 0.1. Price this option at t = 0 using the chaining method.

List the different types of antennas and their applications : List the different antenna types, shapes and sizes, and their applications. List the different types of antennas and their applications. Find images to help describe the different antennas.

Market interest rate for this type of bond : Ariel purchased a 20-year corporate bond with a 12% coupon rate (payments made semiannually) and par value of $1000 for $1300. Six months later, after receiving a coupon payment, Ariel sold the bond. At the time of the sale, the market interest rate ..

Describe each phase of the self-regulated learning (srl) : Describe one (1) topic that you are currently attempting to learn. Explore your motivation for learning about the chosen topic.Describe each phase of the self-regulated learning (SRL) approach to learning. Describe two (2) benefits and two (2) ch..

User Account

All Pages