Reference no: EM133553791

Question 1 Suppose an economy is an export based one where a US MNC conducts business with companies in the export based economy. What are the implications if the currency of the export based economy appreciates significantly against the dollar. What if this appreciation leads to a surplus on the current account in the export economy, what are implications for the supply/demand of the US dollar relative to the currency of this export based economy in the foreign exchange market, holding all else constant?

Question 2 Suppose you observe the following exchange rates: €1 = $.85; £1 = $1.60; and €2.00 = £1.00. Starting with $1,000,000, are there any arbitrage opportunities, if so show and explain how you will exploit this opportunity using a trading strategy.

Question 3 Explain using economic theory why or why not China's use of a fixed exchange rate system will be a good/bad exchange rate regime policy. Based on your answer compare and/or contrast with the German economy. Why should or shouldn't the German economy (assuming it also an export economy) pursue a fixed exchange rate regime?

Question 4 Identify a comparative advantage that exists between two countries globally. Justify/Argue persuasively (using citations, examples and anecdotes if you want) for the comparative advantage and why you think one country may have a comparative advantage over the other country