Interview of an entrepreneur assignment pdf

Chapter 6

Intervention with Euros Assume that Belgium, one of the European countries that uses the euro as its currency, would prefer that its currency depreciate against the U.S. Dollar. Can it apply central bank intervention to achieve this objective? Explain.

1. Indirect Intervention. Why would the Fed’s indirect intervention have a stronger impact on some currencies than others? Why would a central bank’s Indirect intervention have a stronger impact than its direct intervention?

2. Intervention Effects on Corporate Performance Assume you have a subsidiary in Australia. The subsidiary sells mobile homes to local consumers in Australia, who buy the homes using mostly borrowed funds from local banks. Your subsidiary purchases all of this materials from Hong Kong. The Hong Kong dollar is tied to the U.S. dollar. Your subsidiary borrowed funds from the U.S. parent, and must pay the parent $100,000 in interest each month. Australia has just raised its interest rate in order to boost the value of its currency (Australian dollar, A$). The Australian dollar appreciates against the U. S dollar as a result. Explain whether these actions would increase, reduce, or have no effect on: a) The volume of your subsidiary's sales in Australia b) The cost of your subsidiary of purchasing materials (measured in A$) c) The cost to your subsidiary of making the interest payments to the U.S. parent (measured in A$). Briefly explain each answer
4. Intervention Effects on Corporate Performance Assume you have a subsidiary in Australia. The subsidiary sells mobile homes to local consumers in Australia, who buy the homes using mostly borrowed funds from local banks. Your subsidiary purchases all of this materials from Hong Kong. The Hong Kong dollar is tied to the U.S. dollar. Your subsidiary borrowed funds from the U.S. parent, and must pay the parent $100,000 in interest each month. Australia has just raised its interest rate in order to boost the value of its currency (Australian dollar, A$). The Australian dollar appreciates against the U. S dollar as a result. Explain whether these actions would increase, reduce, or have no effect on: a) The volume of your subsidiary's sales in Australia b) The cost of your subsidiary of purchasing materials (measured in A$) c) The cost to your subsidiary of making the interest payments to the U.S. parent (measured in A$). Briefly explain each answer
Chapter 7:

Assume the following information:

Beal Bank Yardley Bank

Bid price of New Zealand dollar $.401 $.398

Ask price of New Zealand dollar $.404 $.400

Given this information, is locational arbitrage possible? If so, explain the steps involved in locational arbitrage, and compute the profit from this arbitrage if you had $1,000,000 to use. What market forces would occur to eliminate any further possibilities of locational arbitrage?

ANSWER: Yes, One could purchase New Zealand dollars at Yardley Bank for $.40 and sell them to Beal Bank for $.401. With $1 million available, 2.5 million New Zealand dollars could be purchased at Yardley Bank. These New Zealand dollars could then be sold to Beal Bank for $1,002,500, thereby generating a profit of $2,500.

The large demand for New Zealand dollars at Yardley Bank will force this bank's ask price on New Zealand dollars to increase. The large sales of New Zealand dollars to Beal Bank will force its bid price down. Once the ask price of Yardley Bank is no longer less than the bid price of Beal Bank, locational arbitrage will no longer be beneficial.

4. Triangular Arbitrage. Assume the following information: