How are percentage changes in a currency's value

measured? Illustrate your answer numerically by

assuming a change in the Thai baht's value from a

value of $.022 to $.026.

2. What are the basic factors that determine the value

of a currency? In equilibrium, what is the relationship

between these factors?

3. How might the relatively high levels of inflation

and interest rates in Thailand affect the baht's value.

(Assume a constant level of U.S. inflation and interest

rates.)

4. How do you think the loss of confidence in

the Thai baht, evidenced by the withdrawal of

funds from Thailand, will affect the baht's

value? Would Blades be affected by the change in

value, given the primary Thai customer's

commitment?

5. Assume that Thailand's central bank wishes to

prevent a withdrawal of funds from its country in

order to prevent further changes in the currency's

value. How could it accomplish this objective using

interest rates?

6. Construct a spreadsheet illustrating the

steps Blades' treasurer would need to follow in

order to speculate on expected movements in

the baht's value over the next 30 days. Also

show the speculative profit (in dollars)

resulting from each scenario. Use both of

Holt's examples to illustrate possible

speculation. Assume that Blades can borrow

either $10 million or the baht equivalent of this

amount. Furthermore, assume that the following

short-term interest rates (annualized) are available

to Blades:

CURRENCY

LENDING

RATE

BORROWING

RATE

Dollars

8.10%

8.20%

Thai baht

14.80%

15.40%