Research Task

1. Complete The Foreign Exchange Market Exercise #1 at the end of Chapter 10. Answer the questions asked in the exercise in a minimum tree-page paper.

Research Task

Answer the questions asked in this exercise in a minimum three-page paper.

The Foreign Exchange Market

Use the globalEDGETM site (www.globaledge.msu.edu) to complete this Exercise :

Exercise

One component of learning about another country or region is to understand the relationship of its currency with others on the world currency market. As such, you are assigned the duty of ensuring the availability of 1,000,000 yen for a payment scheduled for next month. Considering that your company possesses only US dollars, identify the spot and forward exchange rates.

What are the factors that influence your decision to use each?

Which one would you choose?

How many dollars must you spend to acquire the amount of yen required?

2. Complete the Exchange Rate Activity worksheet (attached).

Equilibrium Exchange Rates and Alternative Exchange Rate Systems

Worksheet

1. Circle the “most traded currency” that you chose to examine from the following list

Most Traded Currency
CurrencyTrading Symbol
European euroU.K. poundSwiss FrancJapanese yenEURGBPCHFJPY

2. Identify the currency used in the country you were assigned for the research project and its trading symbol.

Other Currency
CurrencyTrading Symbol*

* Three letter trading symbols can be found at http://www.oanda.com/convert/classic.

Research the exchange rate over the past 12 months between the U.S. dollar and each of the two currencies. How do you explain the level of the exchange rate between each of these currencies and the U.S. dollar? Be sure to include in your analysis relative domestic economic and political factors that may affect exchange rates and the influence of any particular exchange rate regime.

a. U.S. dollar and other major trading currency.

b. U.S. dollar and the currency of your assigned country.