CASE STUDY

Darrol J. Stanley, DBA, is a professor of finance at the Graziadio School of Business and Management. He is well-known as a financial consultant with special emphasis on valuing corporations for a variety of purposes. He has also rendered fairness opinions on many financial transactions, and he has been engaged by corporations to develop strategies to enhance their value. He has served as head of corporate finance, research, and trading of four NYSE member firms. He likewise has been the principal of an SEC-registered investment advisor. He has completed global assignments as well as having served as Chief Appraiser of International Valuations/Standard & Poor's in Europe, Central Europe, and Russia.Darrol J. Stanley, DBA, is a professor of finance at the Graziadio School of Business and Management. He is well-known as a financial consultant with special emphasis on valuing corporations for a variety of purposes. He has also rendered fairness opinions on many financial transactions, and he has been engaged by corporations to develop strategies to enhance their value. He has served as head of corporate finance, research, and trading of four NYSE member firms. He likewise has been the principal of an SEC-registered investment advisor. He has completed global assignments as well as having served as Chief Appraiser of International Valuations/Standard & Poor's in Europe, Central Europe, and Russia.

Question 12.

1.If the aggregate supply and demand curves in the figure at the right describe the situation in an economy at some point in time, we would expect to see

2.When a country devalues its currency, we expect that_________________

3.With a floating exchange rate, a monetary contraction cause________________

4.Suppose that a country has a mixture of individuals and companies that are in each of the following situations:

Group I. These have borrowed in domestic currency to finance assets whose values are also in domestic currency.

Group II. These have borrowed in foreign currency to finance assets valued in domestic currency.

Group III. These have borrowed in domestic currency to finance assets valued in foreign currency.

Group IV. These have borrowed in foreign currency to finance assets valued in (the same) foreign currency. Which of these groups see the domestic-currency value of their wealth fall when the country devalues? (Assume in each case that the initial value of the assets is at least as great as what was borrowed.)

5.If the U.S. economy interchanges into recession due to a weakening in consumer self-confidence, which of the following do we not expect?

6.According to the estimates of "pass-through" in the assigned reading by Mann and Plck, if a foreign currency appreciated against the US dollar by 25%, by how much would you expect the prices of imports from that country to rise, within the US, after several quarters? a. Not at all b. 4% c. 10% d. 25% e. 40%

7.Which country does the Economist article "More Spend, Less Thrift" criticize, and why?