Compare and contrast the continuous current account deficits of the U.S. with the continuous current account surpluses of Japan. Discuss the likely consequences for both countries if the deficit and surplus roles are reversed in the next 10 years.
Analyze the possible strengths and weaknesses of SDRs versus the dollar, and determine if the SDR should or could replace the U.S. dollar as the main global reserve currency.
2. From the e-Activity, discuss the implications of the deviations from purchasing power parity for countries’ competitive positions in the world market.
Researchers found that it is very difficult to forecast future exchange rates more accurately than the forward exchange rate or the current spot exchange rate. Examine the underlying factors behind these findings and make at least two (2) recommendations for improving the forecast of future exchange rates.
3. Compare and contrast the basic differences between the operation of a currency forward market and a futures market.
Discuss how the FX call and put option model pricing can change with respect to European option-pricing relationships.
4. Discuss and compare hedging transaction exposure using the forward contract versus money market instruments.
From the first e-Activity, determine the best way to leverage a currency options contract as a hedging tool compared with a forward contract. Provide specific examples to support your response.
5. General Motors exports cars to Spain, but the strong dollar against the euro hurts sales of GM cars in Spain. In the Spanish market, GM faces competition from Italian and French car makers, such as Fiat and Renault, whose operating currencies are the euro. From the second e-Activity, determine the best course for GM to take to maintain its market share in Spain. Explain your rationale.
Discuss the advantages and disadvantages of maintaining multiple manufacturing sites as a hedge against exchange rate exposure.
6. Suppose you had $20 million U.S. to invest in the international bond market. Describe how you would invest your money and provide the rationale behind your chosen investments.
Discuss the benefits and the drawbacks of investing in the Eurobond market when compared to other international markets. Provide examples to support your response.
7. From the e-Activity, determine if the company you researched would benefit by cross-listing its equity shares on more than one national exchange. Explain your rationale.
Create a list of 2 to 3 best practices for investors who wish to diversify their portfolio internationally. Explain your rationale.
8. Compare and contrast interest rate swaps and currency swaps to determine which type of swap you believe is most appropriate for the most investors. Explain your rationale.
From the first e-Activity, analyze the risks of interest rate and currency swaps of the country you researched. Provide specific examples to support your response.
9. From the second e-Activity, discuss the conditions under which exchange rate changes could actually reduce the risk of foreign investment for the company you researched in the country you selected. Provide specific examples to support your response.
Explain how the advent of the euro affects international diversification strategies.