CHAPTERS 1-5 PROBLEMS
You are only required to complete the questions highlighted in yellow.
You may work in a group of up to 3 people.
One assignment should be turned in with everyone’s name on it.
A hardcopy is required at the beginning of class. It must include a cover sheet. It must be completed in Word or the equivalent and stapled. Loose sheets will not be accepted.
An electronic submission (email) is required by the beginning of class on the due date.
Grades will be posted on Blackboard.

Review
1. Complete the following table. (Adjust as needed to complete your answer.) I have completed one of the rows for you as an example. When completing each row, you should hold every other macroeconomic factor constant (unchanged).
Macroeconomic Factor
Change relative to base FX Market Activity
(This should be expressed in terms of supply and demand of currencies in the FXM.)
Result (depreciation or appreciation)

Interest rates
Increase

Appreciation

Inflation
Decrease

Exports
Increase

Imports
Decrease

Money Supply
Decrease

Economic Growth
Decrease

As individuals earn more, they spend more. You expect imports to rise. Therefore, as individuals import more, the demand for foreign currencies increases which causes the supply of $ to increase. This puts depreciation pressure on the $ because there is a larger supply in the FXM. Domestic Income (wages):
-assume exports are constant
Increase

Depreciation

CHAPTER 2
1. Do Problem 13 (p. 57) from the text.

CHAPTER 3
1. Do Problem 5 (p. 87) from the text.

2. Do Problem 6 (p. 87) from the text.

3. Do Problem 8 (p. 88) from the text. NOTE: Calculate the margin: .2 x price for part b.

4. Do Problem 14 (p. 88) from the text. NOTE: Calculate the revaluation at both 20% and 30%.

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