32.3 Are the following statements true or false? Explain.

a. If the general price index in Japan rises faster than that in the United States (assuming that there are zero transaction costs, that no barriers to trade exist, and that products are identical in both countries), we would expect the yen to appreciate with respect to the dollar.

b. Suppose you are a French wine exporter who receives all payments in foreign currency.
The French government begins to undertake an expansionary monetary policy. If it is certain that the result will be higher inflation in France than in other countries, you would be wise to use forward markets to protect yourself against future losses resulting from the deterioration of the value of the French franc.

c. If you could accurately estimate differences in relative inflation between two countries over a long period of time (and other participants in the market were unable to do so), you could successfully speculate in spot currency markets.

Transcribed Image Text:

f-Argent (Austral) Foreign Currency in Dollars Dollar in Foreign Currency 0.6515 1.5350 Australia (Dollar) 0.7160 1.3966 Austria (Schilling) 0.0784 12.76 c-Belgium (Franc) 0.0267 37.52 f-Belgium (Franc) 0.0264 37.82 Brazil (Cruzado) 0.0419 23.88 Britain (Pound) 1.6317 0.6129 30-day fut 1.6277 0.6144 60-day fut 1.6238 0.6158 90-day fut 1.6204 0.6171 Canada (Dollar) 0.7593 1.3170 30-day fut 0.7591 1.3173 60-day fut 0.7588 1.3179 90-day fut 0.7584 1.3185 y-Chile (Peso) 0.0047 211.34 Colombia (Peso) 0.0043 230.50 Denmark (Krone) 0.1466 6.8220 c-Egypt (Pound) 0.7353 1.3600 f-Ecuador (Sucre) 0.006325 158.10 Finland (Mark) 0.2270 4.4050 France (Franc) 0.1661 6.0220 Greece (Drachma) 0.0075 132.75 Hong Kong (Dollar) 0.1282 7.8015 y-India (Rupee) 0.0779 12.8400 Indonesia (Rupiah) 0.000611 1635.75 Ireland (Punt) 1.4710 0.6798