...A. DESAI MARK F. VEBLEN Exchange Rate Policy at the Monetary Authority of Singapore Dr. Khor Hoe Ee, Assistant Managing Director, Monetary Authority of Singapore (MAS), reviewed the year-end economic data for 2001. He had just met with a number of his colleagues and now paged through the statistics they had discussed. Dr. Khor wondered whether the monetary system that has served Singapore so well since the late 1970s—and had filled the void left by the collapse of the Bretton Woods currency system—was still the best model for Singapore to follow. Singapore’s managed float, sometimes referred to by journalists as a “dirty float,” stood in contrast to the systems used by some of its neighbors: Hong Kong had remained strongly committed to its peg against the U.S. dollar, and Australia had just recently shifted to a completely floating regime. A key item on the agenda for the Monetary Policy Committee meeting at the end of January was to review and set monetary policy in response to the changing economic environment. As head of the MAS’s Economics Department, Dr. Khor knew that he was responsible for recommending a policy response that would be consistent with Singapore’s strategy for sustainable economic growth with price stability as well as supporting Singapore’s role as a major global financial center. A great deal had happened in the domain of monetary policy in the last five years, much of which posed challenges for Singapore. Since the massive currency depreciations...
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...other countries savings to meet its local investment and consumption demands. In contrast, if a country has a negative capital and financial accounts, it will have a current account surplus - because the credit is more than the debit. It means that this country is using its saving for investing. In Singapore, the government is heavily managed the country’s economy. It promotes high levels of savings. Also, the Monetary Authority of Singapore focuses on accumulating foreign reserves. Consequently, Singapore became a net creditor to other countries. It has a large current account surplus and saving accumulation in excess of domestic investment demand, which lead to produce a long-term real appreciation of the SGD. 2. What is a real exchange rate? What determines real exchange rates in the long-run? Real Exchange Rate = Nominal Exchange Rate - Inflation It’s the ratio at which any country’s own currency is equivalent to other currencies in terms of purchasing power. It discounts inflation from the nominal interest rate. It also provides a better measurement of countries exchange rates. The Monetary Authority of Singapore focused mainly on inflation and didn’t use exchange rate as a competitive tool. Therefore, Singaporean...
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...CASE STUDY COMPONENTS: Introduction: Identify case study topic and list assertions (3-6) that can be verified with evidence (field notes, interviews, etc.) 1. Assertions and Evidence: Discuss each assertion separately (minimum one paragraph for each assertion) and include supportive evidence. Underline assertion statements as presented. 2. Implications/Effects: Conclude with an interpretive discussion of implications/effects. Inferences and conclusions based on evidence presented can be drawn. SAMPLE CASE STUDY FOCUSING ON MANAGEMENT STRATEGIES: Management Case Study Introduction Throughout the study, Shelley’s class was well managed. Explanations and evidence to support the following six assertions regarding Shelley’s management style are presented: 1. Shelley did not focus extensively on behavior management; 2. Shelley monitored student behavior throughout lessons; 3. Shelley promptly dealt with potential disruptive behavior; 4. Shelley reinforced acceptable behavior; 5. Shelley was very tolerant of student interaction and discussion; and, 6. Shelley devoted a great deal of time to task management. Assertions and Evidence Throughout the study, Shelley did not focus extensively on behavior management. On most days, the students in Shelley’s class were very well behaved and seemed to be familiar with Shelley’s rules regarding classroom behavior...
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...secondary segments. One is based on related products and services (Business Segmentation), and the other on geographical areas (Geographical Segmentation). In addition, according to FRS 108, companies have to disclose further information such as major customers whom contributed more than 10% of the Group’s revenue. Company Overview As such, the two companies that we have chosen to analyze the addition costs and benefits by the implementation of FRS 108 are Aztech Group Limited (Aztech) as well as Singapore Telecommunications Limited (SingTel). Aztech is incorporated in 1986 and is subsequently listed on the Main Board of the Singapore Stock Exchange. Aztech being a dynamic international group with key activities in Electronics Design & Manufacturing, Materials Supply and Marine Logistics is operating in six countries over three continents. On the other hand, SingTel which is the largest listed company on the Singapore Exchange by market capitalisation is listed on the Singapore Exchange (SGX) in November 1993. SingTel is a leading telecommunication company which offers a wide range of services such as mobile, data, Internet, info-communications technology, satellite and pay TV. Costs and difficulties Financial information collection, processing and dissemination cost The costs associated with financial information collection, processing, and dissemination can be high. For example, prior to FRS 108, Aztech reported their segment based on types of goods supplied and services provided...
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...Chapter 7—International Arbitrage and Interest Rate Parity 1. Due to ____, market forces should realign the relationship between the interest rate differential of two currencies and the forward premium (or discount) on the forward exchange rate between the two currencies. a.|forward realignment arbitrage| b.|triangular arbitrage| c.|covered interest arbitrage| d.|locational arbitrage| ANS: C PTS: 1 2. Due to ____, market forces should realign the spot rate of a currency among banks. a.|forward realignment arbitrage| b.|triangular arbitrage| c.|covered interest arbitrage| d.|locational arbitrage| ANS: D PTS: 1 3. Due to ____, market forces should realign the cross exchange rate between two foreign currencies based on the spot exchange rates of the two currencies against the U.S. dollar. a.|forward realignment arbitrage| b.|triangular arbitrage| c.|covered interest arbitrage| d.|locational arbitrage| ANS: B PTS: 1 4. If interest rate parity exists, then ____ is not feasible. a.|forward realignment arbitrage| b.|triangular arbitrage| c.|covered interest arbitrage| d.|locational arbitrage| ANS: C PTS: 1 5. In which case will locational arbitrage most likely be feasible? a.|One bank's ask price for a currency is greater than another bank's bid price for the currency.| b.|One bank's bid price for a currency is greater than another bank's ask price for the currency.| c.|One bank's ask price for a currency is less than another...
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...LECTURE: TRAN LINH DANG STUDENTS OF TC201DE01-0100 1. Phan Nguyễn Ngọc Xuân Mỹ 101537 2. Vũ Thị Hường 101574 3. Trương Linh Trang 101579 4. Nguyễn Đỗ Thiên Trang 093304 Note for faculty: Date: ___/___/___ For the writer: (Signature & full name) 2012 – 2013 CONTENTS CONTENTS i INTRODUCTION ii I. Exchange rates 1 I 1. Exchange rates 1 I 2. Exchange rate regimes 2 I 3. Roles of exchange rates 3 II. Compare and contrast between the value of VND and the others of ASEAN 5 II 1. The exchange rates in Vietnam from 2008 to 2010 6 II 2. The exchange rates in Vietnam in 2011 8 III. Impacts on exchange rates 10 III 1. Balance of Trade 10 III 2. Balance of Payments 11 III 3. Monetary Policy 12 III 4. Differentials in Inflation 12 III 5. Differentials in Interest Rates 12 III 6. Public Debt 12 III 7. Speculation 13 III 8. Employment Outlook 13 III 9. Political Stability and Economic Performance 13 IV. Adjusted policies of Vietnamese government on exchange rates 14 Recommendation a REFERENCES e INTRODUCTION Since Vietnam began to implement the open door policies and integrate into the world economy, Vietnamese trade has jumped by a so large amount, especially after...
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...using other countries savings to meet its local investment and consumption demands. In contrast, if a country has a negative capital and financial accounts, it will have a current account surplus, because the credit is more than the debit. It means that this country is using its saving for investing. In Singapore, the government is heavily managed the country’s economy. It promotes high levels of savings. Also, the Monetary Authority of Singapore focuses on accumulating foreign reserves. Consequently, Singapore became a net creditor to other countries. It has a large current account surplus and saving accumulation in excess of domestic investment demand, which lead to produce a long-term real appreciation of the SGD. 2. What is a real exchange rate? What determines real exchange rates in the long-run? Real Exchange Rate = Nominal Exchange Rate - Inflation It’s the ratio at which any country’s own currency is equivalent to other currencies in terms of purchasing power. It discounts inflation from the nominal interest rate. It also provides a better measurement of countries exchange rates. The Monetary Authority of Singapore focused mainly on inflation and didn’t use exchange rate as a competitive tool. Therefore, Singaporean companies had to find its way in competing with foreign producers without having unemployment problem....
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...Foreign Exchange Market Demond McKeever National University In view of the fact that the international business environment is not set up with a worldwide medium for exchange, the foreign exchange market is a necessity for international trade. The major functions of the foreign exchange market are to transfer purchasing power, allocate open trade for international markets, monitor exchange rates from fluctuating to rigorously, and to aid in the import and export of goods between countries by providing credit for financing international trade (Suranovic, 2005) The foreign exchange market or forex market as it is often called is the market in which currencies are traded. Currency Trading is the world’s largest market consisting of almost trillion in daily volume and as investors learn more and become more interested, the market continues to rapidly grow. Not only is the forex market the largest market in the world, but it is also the most liquid, differentiating it from the other markets. In addition, there is no central marketplace for the exchange of currency, but instead the trading is conducted over-the-counter. Unlike the stock market, this decentralization of the market allows traders to choose from a number of different dealers to make trades with and allows for comparison of prices. Typically, the larger a dealer is the better access they have to pricing at the largest banks in the world, and are able to...
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...FIN340 304 Tutorial week 3 Questions 1. How can a central bank use direct intervention to change the value of a currency? Explain why a central bank may desire to smooth exchange rate movements of its currency.. 2. Should the governments of Asian countries allow their currencies to float freely? What would be the advantages of letting their currencies float freely? What would be the disadvantages? 3. What is the impact of a weak home currency on the home economy, other things being equal? What is the impact of a strong home currency on the home economy, other things being equal? 4. Assume the Hong Kong dollar (HK$) value is tied to the U.S. dollar and will remain tied to the U.S. dollar. Last month, a HK$ = 0.25 Singapore dollars. Today, a HK$=0.30 Singapore dollars. Assume that there is much trade in the computer industry among Singapore, Hong Kong, and the U.S. and that all products are viewed as substitutes for each other and are of about the same quality. Assume that the firms invoice their products in their local currency and do not change their prices. a. Will the computer exports from the U.S. to Hong Kong increase, decrease, or remain the same? Explain. b. Will the computer exports from Singapore to the U.S. increase, decrease, or remain the same? Explain. NOTE: Explain in great detail with example and diagram if necessary. All presentation must be prepared in Power point slide. 1. A) Central Banks...
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...Question (b)6 Question (c)5 Question (d)6 References: 4 Part I Question (a): Transaction exposure The firm faces with transaction exposure when the exchange rate movements can affect to the financial results in international transaction after the firm is legally obligated to complete transactions (Shapiro, 2010). Typical of transactions that expose the firm to transaction exposure include sales of good and purchases, service or assets, borrowing of money and extension of credit. For example, Honda Motor Cycles in China, that company sells the cars to consumers comes with forward contract, it is included the price adjustment clauses. In order to reflect certain exchange rates changes it’s based on the adjusted price. The forward contract also brings more benefit to the consumers that helps them can get lower price. Furthermore, Honda Company has used policy such as purchasing foreign currency by using the currency swaps. This helps to fix the price of the car across currency contract in advance. In the foreign market from Japan’s Honda Co. the car is priced in Yen that means the company faces with foreign exchange risk. Thus, above solution is helpfully to protect subsidiary and reduce transaction exposure. Translation exposure Translation exposure can be established as type of foreign exchange risk that MNC have subsidiaries operated markets oversea (Wang, 2005), which country faced with translation exposure. This is affected on the translation of the liabilities...
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...Seminar Financial Risk Management 20011-2012 Erasmus University Testing the validity of Purchasing Power Parity: In time series and panel analysis using CPI, TPI and PPI. Supervisor: Everaert Gerdie Leonora Jean-Timothy Marsoufandis-Balomenos Nikolaos Venieris Michael February 10th, 2012 319006 356941 354890 Abstract The examination of the Purchasing power parity theory with reference to 22 (invluding the U.S) countries is the prime objective of the paper. Consumer price index (CPI), whole sale price/producer price index (PPI), traded price index (TPI) and nominal exchange rate are the variables which were investigated in this study for the period 1957Q1-1998Q4, on the basis of the mean reversion hypothesis. Engle-Granger co-integration and Unit root tests have been employed to both of variables and estimated residuals of the sample in order to test the purchasing power parity. Keywords: Purchasing Power Parity, unit-root and co-integration. Content 1. Introduction……………………………………………………………….….3 2. Literature review………………………………………………………….….4 3. Data……………………………………………………………………………7 4. Methodology………………………………………………………………….8 5. Empirical results………………………………………………………..…....11 5.1. 5.2. 5.3. 5.4. 5.5. Unit-root and cointegration results(CPI)……………………………....11 Unit-root and co-integration results(TPI)……………………………..15 Unit-root and co-integration results(PPI)……………………………..16 Half-life deviations from PPP…………………………………………..17 Forecast performance…………………………………………………...20 6....
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...The relationship between stock prices and exchange rates in China Mengyuan Chen Illinois Wesleyan University Dec 10, 2012 Abstract This paper uses the data of RMB exchange rates and stock market prices in China from 1994 to 2011 to estimate the relationship between stock prices and exchange rates. There are two major theories concerning the relationship. According to the portfolio balance effect, these two variables should be negatively related; in addition, according to the international trading effect theory, these two variables should be positively related. The linear regression model is adopted to observe the various relationships between stock and foreign exchange markets. The results confirmed my hypothesis, which indicates that the international trading effect is more dominant, thus the net effect is a positive causal relationship from exchange rates to stock prices. I. Introduction Within the emerging Chinese market, China now has more open policies and advanced financial market instruments to promote globalization. For example, China started to allow the RMB to float within a larger daily range in 2005 and brought derivative options into the stock market. These significant steps all suggest that China is beginning to face a new economic condition. For instance, the challenging policy making of RMB exchange rate is one. Exchange rates and stock prices are both key indicators of the economy and financial markets. So the relationship between those two becomes an...
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...The Foreign Exchange Market Before the times of the foreign exchange market, the world depended on the gold standard to determine the value of goods and services. This paper will describe in more detail the gold standard, the positive and negative aspects of using the gold standard and in addition the paper will summarize the major functions of the world’s major foreign exchange markets. The gold standard was a monetary system that many countries used in order to determine the value of domestic currencies in relation to a specific amount of gold. The value of money, bank deposit and notes were transformed into gold at the specific amount. Britain was the first country to adopt the gold standard in 1816, followed by the United States. From 1834 until 1933 the specified price of gold in the United States was $20.67 per ounce (Bordo, 2002). However, in 1933 U.S. President Franklin D. Roosevelt put an end to the gold standard when he prohibited the possession of gold by any persons except for the purposes of owning or manufacturing jewelry (Moffatt, 2008). This was the beginning of the Bretton Woods System. Under the Bretton Woods System, countries agreed to settle their international balances by converting deficits into U.S. dollars at a flat exchange rate of $35 per ounce (Bordo, 2002). This monetary system only lasted until 1971 when President Richard Nixon completely ended the trading of gold (Moffatt, 2008). Since that time the gold standard has not been used by any major...
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...Your Final Exam is scheduled for next Wednesday. You can take the exam beginning Wednesday Feb 8, 2012 at 12.00 Noon. The Exam window will close on Friday Feb 10, 2012 at 12.00 Noon. You will have two hours, at one sitting, to finish the exam. The current technology does not enable us to monitor the exam, so I will make it "open book". While you have three days to take the exam, I strongly recommend that you take it early on Wednesday or Thursday. In the past, students have encoutered numerous problems if they wait till the last minute such as technology failure, personal or family problems. You will answer a total of 5 questions (2 Problems and 3 short essay Questions). The problems will be focussing on Triangular Arbitrage, and Derivatives. The essay questions will be identical to the ones in the review sheet. More on this in the Adobe session scheduled for Thursday Feb 2, 2012. FINANCE 6644: Global Financial Strategy Krishnan Dandapani January 2012 Final Exam Review Questions Instructions A. Please be concise and precise in your answers. B. Practice answers for closed book, class room setting. C. Suggested length: minimum one page; maximum two pages per question. D. You would answer 5 questions or Problems in two hours in final exam. Questions 1. Ethical Standards a. Can a multinational firm adopt varying ethical standards [such as with regard to product safety...
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...spot rate of the Malaysian ringgit is $.30 and the six month forward rate of the ringgit is $.32, what is the forward premium or discount on an annual basis? A. premium; about 14.5% B. discount; about 14.5% * C. premium; about 13.3% D. discount; about 13.3% E. premium; about 16.7% Solution: use Equation (5-4) [(.32 - .30)/.30] x (360/180) = 13.3% 18. If the spot rate of the Israel shekel is $.32 and the six month forward rate is $.30, what is the forward premium or discount on an annual basis? A. discount; 11.5% B. premium; 11.5% C. premium; 12.5% * D. discount; 12.5% E. premium; 22.5% Solution: use Equation (5-4) [(.30 - .32)/.32] x (360/180) = -12.5% 19. If the Canadian dollar is equal to $.86 and the Brazilian real is equal to $.28, what is the value of the Brazilian real in terms of Canadian dollars? * A. about .3256 reals B. about .3568 reals C. about 1.2 reals D. about 1.5 reals E. about .5600 reals Solution: cross rate .28/.86 = .3256 20. If the Japanese yen was worth $.0035 six months ago and is worth $.0045 today, how much has the yen appreciated or depreciated? * A. appreciated; about 29% B. appreciated; about 25% C. depreciated; about 20% D. depreciated; about 18% E. appreciated; about 15% Solution: use Equation (5-1) (.0045 - .0035)/.0035 = 29% 21. Assume: (1) the US annual interest rate = 10%;...
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