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Assume a currency swap in which two counterparties of comparable credit risk each borrow at the best rate available, yet the nominal rate of one counterparty is higher than the other
A U.S. company needs to raise €50,000,000. It plans to raise this money by issuing dollar denominated bonds and using a currency swap to convert the dollars to euros. The company expects interest
Suppose Morgan Guaranty, Ltd. is quoting swap rates as follows: 7.75 - 8.10 percent annually against six-month dollar LIBOR for dollars and 11.25 - 11.65 percent annually against six-month dollar
If the cost advantage of interest rate swaps would likely be arbitraged away in competitive markets, what other explanations exist to explain the rapid development of the interest rate swap market?
Assess the possibility for the euro to become another global currency rivaling the U.S. dollar. If the euro really becomes a global currency, what impact will it have on the U.S. dollar and the world
In an integrated world financial market, a financial crisis in a country can be quickly transmitted to other countries, causing a global crisis. What kind of measures would you propose to prevent the
Rebut the above criticism from the viewpoint of the proponents of the flexible exchange rate regime.
Suppose that the pound is pegged to gold at 6 pounds per ounce, whereas the franc is pegged to gold at 12 francs per ounce. This, of course, implies that the equilibrium exchange rate should be two fr
Suppose your local Congress representative suggests that the federal government intervenes in the gasoline market to stop runaway price increases. Would you say that this view basically supports the K
Suppose the government decides to decrease spending and increase taxes in an attempt to decrease its deficit. Is it possible for the Fed to ease the macroeconomic effects of the spending and tax chang
What is the new deficit? Explain carefully why the deficit is not zero. c. Suppose the F-L amendment was not in effect and planned investment falls to I = 55.What is the new value of GDP?
During 2003, we began to stop worrying that inflation was a problem. Instead, we began to worry about deflation, a decline in the price level.Assume that the Fed decided to hold the money supply const
Suppose Fred deposits $8,000 in cash into his checking account at the Bank of Bonzo. The Bank of Bonzo has no excess reserves and is subject to a 5 percent required reserve ratio.
If you assume that wealth (W) and investment (I) remain constant (we are ignoring the fact that saving adds to the stock of wealth), what are the equilibrium levels of GDP (Y), consumption (C), and sa
In a simple economy, suppose that all income is either compensation of employees or profits. Suppose also that there are no indirect taxes. Calculate gross domestic product from the following set of n
Assume that (a) the price level is flexible upward but not downward and (b) the economy is currently operating at its full-employment output. Other things equal,how will each of the following affect t
Banks try to keep their excess reserves at a maximum in order to maximize profits.2. The demand for reserves depends on income and the price level.
What is meant by monopolistic competition? Explain and critically analyse Chamberlin's theory of monopolistic competition.
The poorest countries in the world have a per capita income of about $600 today. We can reasonably assume that it is nearly impossible to live on an income below half this level (below $300)
Economists have devised measures of how much consumers alter their purchases in response to price changes. These measures are called price controls. price floors.
Compute the percentage change in nominal GDP, real GDP, and the GDP deflator in 2002 and 2003 from the preceding year. For each year, identify the variable that does not change. Explain in words why y
What was the growth rate of real GDP between 1996 and 1997? f. Was the growth rate of nominal GDP higher or lower than the growth rate of real GDP? Explain.
Why is investment spending unstable? How is it possible for investment spending to increase even in a period in which the real interest rate rises?
Suppose that when the interest rate on loans is 16 percent, businesses find it unprofitable to invest in machinery and equipment. However, when the interest rate is 14 percent, $5 billion worth of inv
Suppose that, on the basis of a nation’s production possibilities curve, an economy must sacrifice 10,000 pizzas domestically to get the 1 additional industrial robot it desires but that it can