Economics Homework Help

INSTRUCTIONS:

1. Answer ALL questions.

2. Read the instructions of each question carefully .

3. Please include all steps in your answers. If you used a calculator or Excel to find some numbers, make a note that those numbers came from a machine.

4. If you draw diagrams, please make sure they are clearly presented.

There are 7 questions in the test-assignment. Answer all questions.

Question 1

Using the simple UIP rule, what is the expected rate of return on euro deposits (expressed in USD) if today’s exchange rate is , next year’s expected exchange rate is 1.166, the US dollar interest rate is 10%, and the euro interest rate is 5%?

(The word limit for this question is 100 words)

Question 2

Suppose the spot exchange rate between the Brazilian real (BRL) and Mexican peso (MXN) is , the interest rate in Brazil is 5%, and in Mexico the interest rate it 6%. What should the expected exchange rate be if the UIP condition holds?

(The word limit for this question is 100 words)

Question 3

The current interest rate in Australia is 0.1%, and in the USA it is 0.25%. The USD/AUD spot rate is 0.72675. The expected exchange rate Ee=0.7300. If the UIP condition holds, Ee remains fixed and both central banks indicate they will not change their interest rates in the near future, then what profitable investment will you make based on the information given? Please explain your answer .

(The word limit for this question is 500 words)

Question 4

In 2020, the Hong Kong dollar (HKD) has repeatedly come under pressure to appreciate, and touched the strong side of the exchange rate guarantee of 7.75 many times. The Hong Kong Monetary Authority (HKMA) insists that it will continue the linked exchange rate between HKD and USD. Using the demand-supply mode for foreign exchange, and the model for short term money market, explain what is likely to be happening if this trend continues. What are the likely macroeconomic consequences if this pressure to appreciate lasts for much longer in the future and the HKMA continues to maintain the peg?

(The word limit for this question is 500 words)

Question 5

Norway unilaterally fixes its exchange rate against the euro but leaves its currency the krone free to float against the non-euro currencies. Given this arrangement, explain why the Norwegian central bank is said to have ‘given up its own monetary policy’.

Question 6

As of August 2020, the latest available number for Greece’s unemployment rate was 16.8%, after going up to as high as 28.7% in the years after the Global Financial Crisis that started in 2008. These levels are very high (e.g. in Hong Kong it is now 6.7% in September 2020) and given the worldwide impact of covid-19, most market observers think this will increase again. The graph below shows clearly that unemployment before 2008 was a lot lower than afterwards. Do you think this huge increase in unemployment, and the subsequent inability of the Greek policymakers to reduce the unemployment rate by much, is a direct result of Greece being in the Eurozone?

(The word limit for this question is 800 words)

Question 7

In an article published on 23rd October 2020 in the Economist Magazine titled “T ariff Man” (available on OLE), it is said that “Although Mr T rump claimed foreigners were paying the $80bn of revenue the tariffs raised, economists found that, in fact, American importers paid it.”

Part (a)

Please briefly explain the possible economic mechanisms that make what are essentially taxes raised on goods imported into the US to be paid by the American importing companies, and not by the exporters from other parts of the world.

(The word limit for this question is 200 words)