This essay International Monetary Relations has a total of 831 words and 6 pages.
International Monetary Relations
Unit 4 - International Monetary Relations, part 1
Assignment Type: Individual Project
Due Date: 8/7/2004
Assume that the 180-day interest rate is 1% and 3%, respectively in the U.S. and Japan. Also, the spot rate and 180-day forward rate are equivalent at 120 yen per one U.S. dollar ($.008333 per one Japanese yen). Discuss how you, as a trader for a commercial bank with $1,000,000 to invest, could earn a risk-free return by engaging in covered interest arbitrage? Be sure to show your calculations.
As a trader for a commercial bank there are several ways to invest in foreign currency to make a profit for the bank. One way that investors know to invest in a foreign investment is comparing the rates of return of foreign investments with those of domestic investment. If rates of return from a foreign investment are larger, the smart investor will shift funds abroad. Interest arbitrage refers to the process of moving funds into foreign currencies to take advantage of higher investment yields abroad. (Carbaugh) There is a risk associated with this process due to the fluctuation of the exchange rate. The risk can be eliminated by using the covered interest arbitrage. This is done in two separate processes. Initially exchange is made with domestic currency for a foreign currency that has a higher current spot and interest rate than the domestic currency at the time. This currency is then used to finance a foreign investment. As you’re doing this you also will contract in the forward market to sell the foreign currency that is expected from the investment. (Carbaugh) You want this to coincide with the maturity of the investments.
Assume that you had 1 million dollars that you wanted to invest and the interest rate is 1% in the U.S. and 3% in Japan for 180 days. Assume that the spot rate and the 180 day forward rate are equivalent at 120 yen per one U.S. dollar. (.00833 yen) With the interest rates being better in Japan the wise investment would be in the Japanese market. By investing using the covered arbitrage it will earn a risk-free investment return profit of 2% or 240,000 yens which would equal 2000 US dollars.
Extra return = (Japan interest rate- U.S. interest rate)
3% - 1% = 2%
Exchange Rate = Yen/dollar
120 yen = one dollar
240,000/120 = 2000
240,000 x .008333 = 1999.92
The covered interest arbitrage reduces the normal risk of any depreciation of the dollar during the 3 month period by allowing the investor to sell enough of the yen on the forward market to coincide with anticipated proceeds of the investment. By doing this the cost of the forward cover equals the difference. At the same time if the yen appreciates the profit margin can increase even more; earning the investor a risk free profit.
Extra return = (Japan interest rate - U.S. interest rate) + % appreciation of the yen
The investment opportunities usually do not last long, so normally investors do not invest for long periods of time because the net profit margin disappears. The spot rate will begin to rise and concurrently the sale of the forward currency will push the forward rate down. This results in the cost of covering the exchange rate to increase in risk.
The inflation rate in the U.S. and Japan are 4% and 2%, respectively and the current spot rate is $.0083333 per one Japanese yen or 120 Japanese yen per one U.S. dollar. How much does the U.S. dollar have to depreciate in order to maintain purchasing power parity? Be sure to show your calculations.
A theory stating that over the long term the exchange rate between two currencies adjusts to relative price levels, that is, relative purchasing power. (Carbaugh) In other words, an identical good in different countries should cost the same after adjusting for currency. In the United States, interest rates are decided by the Federal Reserve.
Interest rates directly affect the credit market (loans) because higher interest rates make borrowing more costly. By changing interest rates, a country is trying to achieve maximum employment, stable prices, and a good level growth. As interest rates drop, consumer spending increases and this in turn stimulates economic growth.
The purchasing power parity predicts that the foreign-exchange value
Topics Related to International Monetary Relations
Foreign exchange market, Financial economics, Interest rates, Financial markets, International finance, Covered interest arbitrage, Uncovered interest arbitrage, Exchange rate, Arbitrage, Japanese yen, Rate of return, Deflation
Essays Related to International Monetary Relations
Sony and Marketing Sony and Marketing WHAT MARKETING IS: The primary concern or objective of marketing is to identify and satisfy, or exceed the changing needs of customers. In view of this broad concern of marketing, it can be seen that the concept of marketing encapsulates many activities in a business. Marketing, in fact, refers to any activity undertaken by a firm that has been designed to plan, price, promote and distribute ideas, goods and services to target markets. These marketing activities were executed
Michael Dominguez Michael Dominguez In the begging of the twenty-century a war was raged against the world. Every country fought to honor and defend it country. The Triple Entente, Germany, Austria-Hungary, and Italy versus the Allies, Britain, France, and America in an all out world war. Each county gathered its troops and raised their spirits high in the honor to defend one's nation. Germany was the first. They declared war on France. The French not willing to back down were at war. Germany now on hostile grou
The 1930s The Good Times and The Bad Times The 1930’s: The Good Times and The Bad Times The decade of the 1930’s can be characterized in two parts: The Great Depression, and the restoration of the American economy. America had been completely destroyed due to the Stock Market Crash of 1929. It was up to the government and people of the 1930’s to mend America’s wounds. One man stood up to this challenge, Franklin Delano Roosevelt. He promised to fix the American economy, provide jobs, and help the needy. During The Great Depression, th
Comparative Politics Comparative Politics Comparative Politics, typically defined as the study of the internal politics of nations other than our own, is a diverse and complex field. There is no one central tendency or approach which dominates this area of inquiry within political science: various theories, concepts, issues and methodologies are evident in the field. While it is recognized that no simple classification can be made of the literature, we are encouraged to be aware of contrasting approaches, and to en
Forest Policy in MalaysiaMalaysia is among the countries in Southeast Forest Policy in Malaysia Malaysia is among the countries in Southeast Asia which has experienced remarkable economic growth and industrialization in the past decade. It is unique in that its success is not a result of adopting any one model for development. Rather, Malaysia’s government identified its goals and sought to create a country-specific model of development suited to their needs for growth. An example of this is the Malaysian government’s increase in exports of manufactured goods rath
The Four Political Parties of CanadaThe Four Political Parties of Canada In a country as vast and as culturally diverse as Canada, many different political opinions can be found stretched across the country. From the affluent neighbourhoods of West Vancouver to the small fishing towns located on the east coast of Newfoundland, political opinions and affiliations range from the left wing to the right wing. To represent these varying political views, Canada has four official national political parties to choose from: the Liberals (w
A Study Of The Market Reforms In Post-Communist Eastern Europe With A A Study Of The Market Reforms In Post-Communist Eastern Europe With A Specific Case Study of Poland Introduction Poland, as well as it's fellow post-communist countries, face an arduous task in re-inventing their economies to match the dominant Western style currently dominating the world. The difficulties lie in the areas of ideology, structural needs (massive changes required), world recession(current) and debt load. Communist Economics Why did the economics of the communist bloc fail so miser
MexicoMexico Mexico was the site of some of the earliest and most advanced civilizations in the western hemisphere. The Mayan culture, according to archaeological research, attained its greatest development about the 6th century AD. Another group, the Toltec, established an empire in the Valley of Mexico and developed a great civilization still evidenced by the ruins of magnificent buildings and monuments. The leading tribe, the Aztec, built great cities and developed an intricate social, political, a
Recent Chinese economic policies have shot the country into the world Recent Chinese economic policies have shot the country into the world economy at full speed. As testimony of this, China's gross domestic product has risen to seventh in the world, and its economy is growing at over nine percent per year (econ-gen 1). Starting in 1979, the Chinese have implemented numerous economic and political tactics to open the Chinese marketplace to the rest of the world. Just a few areas China's government is addressing are agricultural technology, the medical market, and
The Economy of Japan had experience a tremendous growth since the end The Economy of Japan had experience a tremendous growth since the end of the Korean war. The growth of GNP in 1967 and 1968 was above 10 % (double digit growth period) which exceed countries such as Britain, France and Germany. The economy experienced a boost is due to many reasons, such as: enlargement of industrial facilities, massive adaptation of western technology and education, lower the military expense to 1% of GNP, relation with power nation, human resources and their spirit to achieve
Chaos in The Currency Markets Currency Crisis of The EMS Chaos in The Currency Markets : Currency Crisis of The EMS 1. What does the crisis of September 1992 tell you about the relative abilities of currency markets and national governments to influence exchange rates? The currency markets and national governments both have abilities to influence exchange rates. Like other financial markets, foreignexchange markets react to any news that may have a future effect. Speculators are the part of the currency markets that take currency positions based on
Chinese Economic Reform under Communist Rule Chinese Economic Reform under Communist Rule Two years after the death of Mao Zedong in 1976, it became apparent to many of China’s leaders that economic reform was necessary. During his tenure as China’s premier, Mao had encouraged social movements such as the Great Leap Forward and the Cultural Revolution which had had as their bases ideologies such as serving the people and maintaining the class struggle. By 1978 Chinese leaders were searching for a solution to serious economic proble
The Loewen Group Inc was founded in 1969 The company has two major hea The Loewen Group Inc. was founded in 1969. The company has two major headquarters in North America, one in Burnaby, British Colombia and a second in Cincinnati, Ohio. Loewen Group Inc. (L.G.I.) is the largest funeral services enterprise in Canada and is the second largest company in the North American Funeral Services Industry. L.G.I. owns 918 funeral homes and 269 cemeteries and also engages in the pre-need selling of funeral services including cemetery and cremation services. The company stri
The soaring volume of international finance and increased interdepende The soaring volume of international finance and increased interdependence in recent decades has increased concerns about volatility and threats of a financial crisis. This has led many to investigate and analyze the origins, transmission, effects and policies aimed to impede financial instability. This paper argues that financial liberalization and speculation are the most reflective explanations for instability in financial markets and that financial instability is likely to be transmitted glo
Floating Exchange Rates The Only Viable Solution Floating Exchange Rates: The Only Viable Solution Stentor Smith For some, the collapse of Mexico's economy proves that floating exchange rates and markets without capital controls are deadly. Others find the crash of the European exchange-rate mechanism (ERM) in 1993 to be proof that targeted rates will always be overturned by the free market. Many see the breakup of Bretton Woods as the failure of fixed rates. Yet others believe monetary unification in Europe is the only way to achieve economi
Describe import substitution Inward looking developmental strategy cle Describe import substitution (Inward looking) developmental strategy, clearly outlining the differences between the first and second stage. Assess its effectiveness in promoting economic development. Compare inward looking and outward looking strategies and discuss the assertion that the latter is superior. The First Stage of Import Substitution: All present day industrial and developing countries protect their manufacturing industries for the domestic markets. While the industrial countries of
The investment industry is composed of a wide variety of firms The mai The investment industry is composed of a wide variety of firms. The main players include independent full line brokerage firms, investment bank subsidiaries of chartered banks, and discount brokers. Independent full line brokerage firms offer a wide range of services, including underwriting, trading of stocks, advice and research. In essence, the full service brokerage subsidiaries of chartered banks offer the same services, however, banks' brokerage firms may have a larger pre-established clie
BECOA Report on BECOA Report on Investing Currencies in the Far East Prepared by: Brad Saunders Introduction In the world today, the possibilities are endless for people who want to make money. These opportunities may exist in the form of a bond, currency, stock, or business venture, but the common tie between them is that it is possible to make money if you research the market and impose the proper strategic plans. In this report, the issue of investing money in the currency markets of the Far East will be my
The nation's economic stability has many factors which The nation's economic stability has many factors which amount to inflation. Inflation may be caused by a number of problems, but there are some specific examples which have direct control over which way the prices and spending sway. Inflation simply means that the American dollar, in this case, is less valuable on the foreignexchangemarket and the gold standard is moved to higher prices; which simply means that more currency is needed to exchange for gold. Any slight change in investments or
Hand over the rights to Jen schriver Hand over the rights to Jen schriver NAFTA - Canada’s & Mexico’s Viewpoints When the Canada/U.S. free trade agreement came into effect, the Mexican’s were very impressed by the provision and opportunities that opened for both sides. Mexico then approached the U.S., seeking to form a similar agreement with them. This brought forth a new issue in Canada, should they let Mexico and the U.S. form an agreement without them? Or should they participate, thus transforming their deal with the U.S. into
Russian Reform and Economics The Last Quarter of the 20th Century Russian Reform and Economics: The Last Quarter of the 20th Century Outline Thesis: As the reformation of the USSR was becoming a reality, Russia's economy was crumbling beneath it. Russia began its economic challenge of perestroika in the 1980's. The Russian people wanted economic security and freedom, while the government was trying to obtain democracy. The previous management styles needed to be changed along with the way that most businesses in Russia operated. I. Reformation of USSR A. The
Since the birth of this great nation in 1776 the United States has rem Since the birth of this great nation in 1776, the United States has remained a dominant world power in many aspects. The American standard of living has been the envy of the world, powered by an economy rivaled by nearly no one. Our economy continues to be the rock with which the global economy can lean on, as evidenced by nations that rely on huge reserves of the dollar because of its stability as a means of settling international debts. Unfortuneatly, despite the solidity that our economy is
Odds on - creating and maintaining a national art collection in South Odds on - creating and maintaining a national art collection in South Africa The mainstay of any museum is its permanent collection. The story of the initiators and major benefactors of the South African National Gallery (SANG) is a significant one which cannot be told here, but which all the same has to be mentioned and acknowledged. The first efforts towards the formation of an art gallery in Cape Town were made in 1871 by the South African Fine Arts Association, and were given further impetus
Cultural conflicts and social change in Africa and its Sub-regionCultural conflicts and social change in Africa and its Sub-region: conceptualising the possibilities and limitations of conflict management Cultural conflict Conflict is a construct referring to affective aspects of a particular situation, which involves antagonists. My observations have led me to suggest that conflict fits within the following table of emotional and affective states in a society, which can vary from time to time: Feeling/State Interaction Consequences Comfort Discussion Stabili
Assignment 3Assignment 3 Pg 500 Q10) a) For the first year Frank should charge Sarah a 12% nominal interest rate. (Increase in inflation + real return expected =10+2=12%) For the second year Frank should charge Sarah a 23% nominal interest rate. (Increase in inflation + real return expected =21+2=23%) b) To not allow the change in inflation to have any effect on the 2% real rate of return Frank wants, he should increase the nominal interest rate so that inflation does not have any effect on the real rate of
The Latham Seafoods Case The Latham Seafoods Case Introduction Attracted by the low labour costs and economic growth in the Southeast Asia, more and more developed Western businesses are shifting business to Southeast Asian countries in order to maintain a competitive position in international market. In this study, three countries, which are Vietnam, Philippines and Malaysia, have been selected as candidates for Latham Seafoods – a New Zealand based small fish product manufacturing company, to expand its business. Ass
An economic analysis on what is happening in the South African Motor iAn economic analysis on what is happening in the South African Motor industry. Economics 101 Essay 1 18 march 12:20 Abstract The purpose of the essay is to give you a critical view on what is really happening within the car industry and I plan to demonstrate and illustrate what happens to the demand and the supply of entry-levelled vehicles in the situation of the motor vehicles being over priced in the face of weakening foreign currencies and a strengthening Rand. The issue was addressed by loo
International Monetary RelationsInternational Monetary Relations Unit 4 - International Monetary Relations, part 1 Assignment Type: Individual Project Due Date: 8/7/2004 Name Part 1: Assume that the 180-day interest rate is 1% and 3%, respectively in the U.S. and Japan. Also, the spot rate and 180-day forward rate are equivalent at 120 yen per one U.S. dollar ($.008333 per one Japanese yen). Discuss how you, as a trader for a commercial bank with $1,000,000 to invest, could earn a risk-free return by engaging in covered intere
European Herald TribuneI AbstractEuropean Herald TribuneI. Abstract T his project presents a concise detailed analysis of a prospective business plan for an innovative new newspaper known as the European Herald Tribune (EHT), which will be in affiliation with the widely read and respectable International Herald Tribune (IHT). The main goal of the EHT is to become “Europe’s Newspaper.” In order to achieve this thorough research has been conducted on the various aspects that may affect the establishment and the possible future su
Business NotesBusiness Notes 1.Your company buys, sells, and stores warehouses full of gold. Today, the The Sp 2 index eguals the sume of stock prices for companies A Z today: pa=37.pz=78 futures price for gold with delivery in one year is $360 per ounce. The spot price is $370 per ounce. Your company is able to invest and borrow at the riskfree interest rate of 6.6%. Furthermore, your company can, if necessary, store and safeguard an additional 1000 ounces of gold for virtually free. Which statement about th
GlobalizationGlobalization People around the globe are more connected to each other than ever before. Information and money flow more quickly than ever. Goods and services produced in one part of the world are increasingly available in all parts of the world. International travel is more frequent. International communication is commonplace. This phenomenon has been titled globalization. Globalization: a process of increasing economic, intellectual, environmental and cultural intercourse between everyone and
General Motors Case AnalysisGeneral Motors Case Analysis RUNNING HEAD: General Motors Case Analysis General Motors: Cadillac Case Analysis Situation Analysis In 1986, Lloya Reuss, who was the Executive Vice President of all North America car operations for General Motor (GM), set new goals for GM to achieve because the task before Reuss was an ominous one. In 1959, when Reuss joined General Motors, GM and Cadillac had huge changed. Also, during that time, the U.S. auto market belonged to the three domestic producers (GM, F
ISLAMIC FINANCEISLAMIC FINANCE TERM REPORT CAR IJARA MBA 3 (DPO) DATE: 16TH DECEMBER 2002 BUSINESS ADMINISTRATION ACKNOWLEDGEMENTS At the completion of this report, we are very thankful to Mr. Ahmed Ali of Meezan bank for his sharing of valuable information, time and providing us with useful insight into the subject of Islamic car financing.. We are thankful to Mr. Farid Khan, of Meezan Bank for sharing his knowledge of car financing with us. We are also thankful to Mr. Mansoor Ali of Citibank for providing us
Customs Nomenclatures andCustoms Nomenclatures and Techniques________________________________________________________________________Latin American Integration AssociationALADI I.U.P. CLASS: CUSTOMS NOMENCLATURES AND TECHNIQUES GROUP MEMBERS: Guayaquil - Ecuador2003 - 2004Latin American Integration AssociationALADI________________________________________________________________________INTRODUCTION ALADI replaced the Latin American Free Trade Association (LAFTA; Asociación Latinoamericana de Libre Comercio), which had be
Exchange RatesExchange Rates ACKNOWLEDGEMENTS Recognition must be giving to ___, ___, Vancouver BC, Canada for granting the permission to reproduce the graph image of exchange rate fluctuation, on the basis of which I have made my assignment. I would also like to thank my Lecturer and Subject Coordinator Assoc. Prof. ___ for her guidance and useful tips which have helped me in completion of this task. ABSTRACT This assignment defines the exchange rate and then introduces two different ways by which the price
SchrodersSchroders Schroders is a global asset management company with £95.5 (E138.95 / $161.70) billion under management as at 31st October 2003. Our clients include corporations, insurance companies, local and public authorities, charities, pension funds, high net worth individuals and retail investors. Our aim is to apply our specialist asset management skills in serving the needs of our clients worldwide and in delivering value to our shareholders. With one of the largest networks of offices of any d
Starting a Small EnterpriseStarting a Small Enterprise Starting a Small Enterprise Starting a Small Enterprise TABLE OF CONTENTS Page Introduction Why Be an Entrepreneur? ................................................ Rewards of Entrepreneurship ........................................... Risks of Entrepreneurship ................................................ 3 3 4 Process Flow: Starting a Small Enterprise ....................... 5 Analysis Are You Entrepreneurial? ................................................. Ad
INTERNATIONAL FINANCE CORPORATIONINTERNATIONAL FINANCE CORPORATION DESIGN IMPROVEMENT Prepared for: International Finance Corporation Headquarters April 25, 2004 Project # 00-001 April 25, 2004 International Finance Corporation 2121 Pennsylvania Avenue, NW Washington, DC 20433 USA Attention : Mr. Bernard Pasquier, CEO INTERNATIONAL FINANCE CORPORATION DESIGN IMPROVEMENT I have completed a 7 week project on IFC’s capability to support an earlier design process. This project was approved on March 12, 2004. In agreement to the ori
Bartering In Todays EconomyBartering In Today’s Economy Feb. 04, 2004 Econ 2105 Most people think that in current times in the United States bartering is not a common act. When the idea of bartering comes to mind most people think of chickens being traded for pigs or goats for a bundle of rice. Well, the fact is that bartering is still very prevalent among small businesses and self employed persons in the construction and repair fields. Also, the internet has played a major role and provided new growth in the barter excha
The Woman Warrior A story of a lost fightThe Woman Warrior. A story of a lost fight. English 455 Anger and confusion were following me as I was trying to fight my way through Maxine Hong Kingston’s masterpiece. I was helplessly looking for some answers. Who is the Woman Warrior? Where is the fine line between fiction and non-fiction, if there is one? What is the connection between all of the stories that seemed non-related to each other? And as soon as I thought that I figured it out, the author failed me again. I was surprised (and no
Continental CongressContinental Congress The Continental Congress met in one of the most conservative of the seaport towns from which the revolutionary movement stemmed. Philadelphia patriots complained that there was more Toryism in Pennsylvania than in all the colonies combined; certainly the Quakers who dominated the province were more concerned in putting down radicalism at home than resisting tyranny from abroad. The character of the delegates who assembled in Philadelphia in September 1774 was likewise a good
Regionalism in global societiesRegionalism in global societies. The article raised above was actually the issue which first came into my mind when I started to think about Regionalism in the modern. New technologies gave us chances to communicate interactive and real time around the world, but do not substitute the request for face to face contact and association. On the one hand, the extension allows a worldwide participation in communication, on the other hand this newly shaped community is structured like a tribe. Now we a
UzbekistanUzbekistan Current Political Economic Situation Political situation Uzbekistan, the most populated republic in Central Asia with almost 25 million in-habitants, became independent, after the collapse of the Soviet Union, on 31 August 1991. Its constitution, adopted in 1992, is rather liberal in its statement. It introduces a Presidential system with a Parliament (Oly Majlis/Supreme Council) elected by universal suffrage, enabling several parties to present candidates. Mr Islam Karimov, former he
Economic Standards Part 2Economic Standards Part 2 12.13.1 Commonly accepted responsibilities of government in the economy are things like economic goals. The four basic economic goals are to regulate business, provide public goods, promote citizens economic well-being, and to stabilize the economy. They regulate business to prevent abuses, protect consumers, limit negative externalities, and promote competition. Providing public goods has responsibilities from the government to private companies. They promote economic
Monetary Policy Monetary Policy Monetary policy is one of the tools that the Government uses to influence the economy. Using its monetary authority to control the supply and availability of money, the government attempts to influence the overall level of economic activity in line with its political objectives such as low unemployment, low inflation, economic growth, and a balance of external payments. Monetary policy is usually administered by the Federal Reserve Bank in the United States. The Federal Reserve
Report on World War IReport on World War I Table of contentsPage 0: introduction Page 1: years leading up to the war:1850-1914Page 2:causes of warPage 3:war breaks outPage 3:Land warfare, war plansPage 4:land warfare,1914Page 8:Land warfare,1915Page 10:land warfare,1916Page 12:land warfare,1917Page 15:land warfare,1918Page 21:naval warfare, war plansPage 22: naval warfare, generalPage 23:air warfare, generalPage 23:endingPage 24:references Chapter 1: introduction August 2nd, 1914: Europe was darkened by the horrible
US ExpansionismU.S. Expansionism During the late nineteenth and early twentieth centuries, the United States pursued an aggressive policy of expansionism, extending its political and economic influence around the globe. That pivotal era in the history of our nation is the subject of this on-line history. Through the course of history, many of the nations in the world expanded internationally through imperialism. These nations were creating empires throughout the world. The United States of America for example,
External Influences on Land Rover economic conditions External Influences on Land Rover economic conditions Task 1 Land Rover customers in the UK If interest rates rise by 2% people will not borrow money to help purchase cars, it will cost too much to pay back a loan provided by the bank. In addition, car sales will decrease and if inflation increases the price of cars will begin to increase. Then customers will find that it costs too much to buy cars due to the increase in bank loans. Land Rover customers in the USA If inflation increases people
GlobalizationGlobalization Globalization is the increasing integration of world-economies through the free flow of goods and services across national boundaries. It can be seen as the liberalization of global markets. Goods and services can be defined as tangible and intangible, e.g. the agricultural sector supplying ground provisions can be classified as tangible and the tourism and banking sectors can be classed as intangible as they are service industries. Commonwealth Caribbean states include: Anguilla,
Ionics companyIonics company Introduction Today, in the dawn of a new century and amid the information technology explosion, there are at least 400 million people living in countries experiencing water stress . by the year 2025 , this number is estimated to climb to three billion.While there is no denying the impact of the internet and global information age, we believe that there probably no issue more profound or underestimated – for humanity than that of water scarcity . with world population surpassing th