According to purchasing power parity (PPP), if a foreign cou…

According to purchasing power parity (PPP), if a foreign country’s inflation rate is below the inflation rate at home, home country consumers will increase their imports from the foreign country and foreign consumers will lower their demand for home country products. These market forces cause the foreign currency to appreciate.

An  increase in the home country’s inflation rate relative t…

An  increase in the home country’s inflation rate relative to that of other countries would _________ the home country’s current account balance.  An increase in the value of the home country’s currency  would __________ the home country’s current account balance.

Tennessee Co. conducts business in the U.S. and Canada. The…

Tennessee Co. conducts business in the U.S. and Canada. The net cash flows from Canadian operations are expected to be C$500,000 next year. The Canadian dollar is valued at about $.90. The net cash flows from U.S. operations are supposed to be $200,000. To reduce sensitivity of its net cash flows without reducing its volume of business in Canada, Tennessee Co. could:

Money Corp. frequently uses a forward hedge to hedge its Mal…

Money Corp. frequently uses a forward hedge to hedge its Malaysian ringgit (MYR) receivables. For the next month, Money has identified its net exposure to the ringgit as being MYR1,500,000. The 30-day forward rate is $.23. Furthermore, Money’s financial center has indicated that the possible values of the Malaysian ringgit at the end of next month are $.20 and $.25, with probabilities of .30 and .70, respectively. Based on this information, the revenue from hedging minus the revenue from not hedging receivables is____.

The inflation rate in the U.S. is 3%, while the inflation ra…

The inflation rate in the U.S. is 3%, while the inflation rate in Japan is 10%. The current exchange rate for the Japanese yen (¥) is $0.0075. After supply and demand for the Japanese yen has adjusted in the manner suggested by purchasing power parity, the new exchange rate for the yen will be: