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Your friend knows that you have taken FIN B386 and thus understand about the theory and effects of international financial management. One day, your friend
Your friend knows that you have taken FIN B386 and thus understand about the theory and effects of international financial management. One day, your friend has three queries in mind and asks for your opinions. Analyze whether each of the following statement is true or false and provide explanation. (a) If the general price index in UK rises faster than that of US, we would expect the UK pound to appreciate relative to US dollar. (b) If you could accurately predict differences in the relative inflation rates of two countries over a long period while other market participants were unable to do so, you can successfully speculate in spot currency markets. (c) Suppose efficient markets hold and you a Canadian machine tool exporter, and you invoice all of your sales in foreign currency. Besides, the European Central Bank will adopt an expansionary policy. If it is certain that there will be higher inflation rate in European countries than in other countries, you should use forward markets to protect yourself against future losses due to euro depreciation
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