1. When a U.S. domestic producer begins selling exports, they typically need to worry about the foreign exchange market, since often the revenues an exporter earns are foreign currencies that then need to be traded into dollars. Because the foreign exchange value of the dollar tends to fluctuate, this adds an additional level of risk to the exporter’s business. What are some factors that would make a domestic producer willing to take on this extra and new type of risk?

2. Changes in the value of a nation’s currency affect the nation’s net exports, and thus GDP. How might this make a large country, like the U.S., more willing to adopt a flexible exchange rate regime than a small country, like Belgium.

The following data pertains to Stocks X and Y: (b) Probability Stock X return Stock Y return (c) Recession Market 0.2 -20% -15% Normal Market 0.5 18% 20% Boom Market 0.3 Required (a) What are the expected rates of return for Stocks X and Y (% in 2 d.p.)? 50% 10% What are the standard deviation of returns on Stocks X and Y (% in 2 d.p.)? Assume that out of your $10,000 portfolio, you invest $9,000 in Stock X and $1,000 in Stock Y. What is the standard deviation on your portfolio (% in 2 d.p.)?