How are prices established in foreign exchange markets

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1. Under what conditions might a country devalue its currency today?

2. Are there any circumstances under which a country might want to increase its currency's value?

3. How are prices established in foreign exchange markets?

4. Discuss the major types of arbitrage activities that affect the foreign-exchange markets. Suppose the spot pound and the 90-day forward pound are both selling for $1.65, while U.S. interest rates are 10% and British are 6%. Using the covered-interest arbitrage theory, describe what will happen to the spot price of the pound, interest rates in the U.S. and interest rates in U.K. when arbitrageurs enter this market.

Reference no: EM132867698

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