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1) Assume the following information regarding U.S. and European annualized interest rates: Currency Deposit Rate Borrowing Rate U.S. Dollar ($) 6.73% 7.20% Euro () 6.80%
1) Assume the following information regarding U.S. and European annualized interest rates: Currency Deposit Rate Borrowing Rate U.S. Dollar ($) 6.73% 7.20% Euro () 6.80% 7.28% Trensor Bank can borrow either $20 million or 20 million. The current spot rate of the euro is $1.13. Furthermore, Trensor Bank expects the spot rate of the euro to be $1.10 in 90 days. What is Trensor Bank's dollar profit from speculating if the spot rate of the euro is indeed $1.10 in 90 days? 2) If inflation in New Zealand suddenly increased while U.S. inflation stayed the same, how would the equilibrium value of NZ dolars change? Please show on a demand and supple graph. 3) If Turkey experiences an increase in interest rates relative to U.S. interest rates, the inflow of U.S. funds to purchase its securities should the outflow of its funds to purchase U.S. securities should and there is pressure on its currency's equilibrium value. 4) Assume that the total value of investment transactions between United States and Mexico is minimal. Also assume that the total dollar value of trade transactions between these two countries is very large. Now assume that Mexico's inflation has suddenly increased, and Mexican interest rates have suddenly increased. i) Please draw a graph to show how the equilibrium value of Mexican Pesos will change. ii) What's more important for Mexican Pesos given the circumstances, change in interest rates or change in niflation in Mexico
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