Swatch Group & Francogeddon:

1. Consider the effects of changes in real and nominal exchange rates on a firm's stock price in the following scenarios: a. A permanent 10% appreciation of the franc beginning in 2015. b. A permanent 10% appreciation of the franc beginning in 2015, coupled with 10% foreign inflation in 2015 (and zero inflation thereafter). c. A permanent 10% appreciation of the franc beginning in 2015, along with 9.1% Swiss deflation in 2015 (and zero inflation thereafter). d. No change in the franc, but 9.1% Swiss deflation in 2015 (and zero inflation thereafter). e. Make a general statement about the effects of nominal and real exchange rate changes on Swatch's stock price.

2. SNB's ceiling policy: a. Why did the SNB implement the ceiling policy? b. Use a supply and demand diagram for the Swiss franc in the foreign exchange market to depict what SNB had to do to keep the franc ceiling in place. In the case, find evidence of the effects of this policy on the Swiss monetary base and money supply. c. Why do you think SNB ended the ceiling policy?