1.1) Explain the concepts of currency boards, dollarization and free-floating regimes of exchange rates highlighting the...

 

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1.1) Explain the concepts of currency boards, dollarization and free-floating regimes of exchange rates highlighting the advantages and disadvantages associated with each of them. [40%] 1.2) Give an example of how to record a transaction in the current account of the Balance of Payments, for both the home country and the foreign country. [15%] 1.3) You are given the following spot and forward bid-ask rates for the Australian dollar (US$/A$) exchange rate: Period US$/A$ Bid Rate US$/A$ Ask Rate spot 0.91630 0.91700 1 month 0.91477 0.91551 2 months 0.91313 0.91388 3 months 0.91156 0.91233 6 months 0.90542 0.90621 12 months 0.89155 0.89242 24 months 0.86488 0.86602 Can you tell for which maturities the Australian dollar is at premium (and the US dollar is at discount) and for which maturities the Australian dollar is at discount (hence the US dollar is at premium) without calculating the forward rates? Use 5 decimal points in your calculations. [30%] 1.4) Using the mid-rates and using the information in the table from question 1.3) calculate the forward premium or discount for the Australian dollar at 3 months. [15%] 1.1) Explain the concepts of currency boards, dollarization and free-floating regimes of exchange rates highlighting the advantages and disadvantages associated with each of them. [40%] 1.2) Give an example of how to record a transaction in the current account of the Balance of Payments, for both the home country and the foreign country. [15%] 1.3) You are given the following spot and forward bid-ask rates for the Australian dollar (US$/A$) exchange rate: Period US$/A$ Bid Rate US$/A$ Ask Rate spot 0.91630 0.91700 1 month 0.91477 0.91551 2 months 0.91313 0.91388 3 months 0.91156 0.91233 6 months 0.90542 0.90621 12 months 0.89155 0.89242 24 months 0.86488 0.86602 Can you tell for which maturities the Australian dollar is at premium (and the US dollar is at discount) and for which maturities the Australian dollar is at discount (hence the US dollar is at premium) without calculating the forward rates? Use 5 decimal points in your calculations. [30%] 1.4) Using the mid-rates and using the information in the table from question 1.3) calculate the forward premium or discount for the Australian dollar at 3 months. [15%]

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Lets address each part of the question step by step 11 Currency Boards Dollarization and FreeFloating Regimes Currency Boards In a currency board syst... View the full answer