Suppose that foreign investors are worried about the political stability of Acadia. How would that fear affect the real interest rate and the real exchange rate?
If foreign investors lose confidence on Acadian political stability, they will invest less in Acadia. Since inbound FDI will fall in Acadia, domestic real interest rate will decrease.
Also, lower inbound FDI will decrease the demand for Acadia's domestic currency, so its domestic currency will lose value and depreciate. As a result, real exchange rate will decrease.
Suppose that foreign investors are worried about the political stability of Acadia. How would that fear...
Describe the importance of political stability to foreign investors. Provide two examples of how political stability is important to forcign investors. + 100 Page 1 of 1 51 WordsEnglish (us) 7
The Indian authorities recently announced that they would allow foreign investors to buy Indian government bonds denominated in Rupees (INR) in the secondary market (i.e., the market where existing bonds are traded among investors), if these investors hold on to the bonds for a minimum of two years. Suppose that foreign sovereign wealth funds with massive amounts of dollars to invest decide to purchase substantial quantities of these bonds; at the same time, the Reserve Bank of India (RBI), the...
The Indian authorities recently announced that they would allow foreign investors to buy Indian government bonds denominated in Rupees (INR) in the secondary market (i.e., the market where existing bonds are traded among investors), as long as these investors hold on to the bonds for a minimum of two years. Suppose that foreign sovereign wealth funds with massive amounts of dollars to invest decide to purchase substantial amounts of these bonds; at the same time, the Reserve Bank of India...
Country X's economy is enjoying political stability and attracting foreign financial capital. At the same time Country X's government is borrowing to finance spending. How will these changes affect the loanable funds market in Country X? There will be a decrease in the supply of loanable funds There will be a decrease in the demand for loanable funds There will be an increase in the equilibrium nominal interest rate. C There will be an indeterminate effect on the equilibrium real...
Suppose that investors who determine the Spanish German exchange rates only care about the value-of-risk of their holdings of Spanish assets, how would this affect the equation which determines interest rate parity? How might this affect the consequences of monetary policy? [Hint: define Value-At-Risk and explain how this comes into play].
Consider a foreign economy with current exchange rate of 15 units of currency per 1 USD. Investors can buy a US bond paying 396 for a year or can by a foreign bond (with equivalent risk). a. If exchange rate one year forward is 16, what interest rate would make investors indifferent between investing in the US or foreign country? b. If forward exchange rate were 14, instead, what interest rate would make investors indifferent? 4.
Consider a foreign economy...
Problem 8: Saving and Investments (20 points) Assume that as a result of increased political instability, investors move their funds out of the country of Tara a. How will this decision by investors affect the interest rate and the quantity of loanable funds at the equilibrium? Explain and show it using a correctly labeled graph of the loanable funds market (5 points) b. Given your answer in part (a). what will happen to Tara's rate of economic growth? Explain. (5...
14. Consider the open-economy loanable funds model with flexible prices and capital mobility. Suppose that the world consists of a small open economy (we call this domestic) and the rest of the world (we call this foreign). Answer the following questions with the aid of figures where appropriate a. How does an increase in domestic government expenditure affect trade balance and real exchange rate? (2 points] b. How does an increase in foreign government expenditure affect the trade balance and...
Explain how interest rates, inflation, and market psychology affect foreign exchange. How can organizations protect themselves from foreign exchange volatility. Apply to any currency of your choice. When referring to interest rate, please differentiate real interest rates from nominal interest rates, short-term vs. long-term effect.
How would aggregate demand change if foreign incomes increase and the exchange rate value of the dollar increases? a. Neither change would affect aggregate demand. b. The increase in income would decrease aggregate demand; the increase in the exchange rate would increase aggregate demand. c. The increase in income would increase aggregate demand; the increase in the exchange rate would decrease aggregate demand. d. Both changes would decrease aggregate demand If the exchange rate value of the dollar depreciates relative...