12.1 Exchange rates: What is meant by an indirect exchange rate quote? What is meant by a direct exchange rate quote?

12.3 Spot and forward transactions: If a tonne of canola is worth $300, and a British

pound is worth $2.50, how many pounds would a person receive for 1000 tonnes of canola sold in Britain in the spot market? If the delivery were to occur in three months and Australian interest rate exceeded the British rate by 2 per cent per year, what would likely be received in the forward exchange market for a conversion arranged now if the current spot rate is $2.50 per British pound? Explain.

12.4 Exchange rates: If one dollar can buy 85 Japanese yen and a British pound costs $2.50, how many yen would it take to buy one pound? If a kg of copper costs GBP1 in Britain, JPY160 in Tokyo, and $2.00 in Australia, where is it most expensive and where is it least expensive?

12.6 Balance of payments: What is a balance of payments? What is a current account and

what is a capital account? Give some examples of some of the transactions that are

recorded in each.

12.9 Balance of payments: If the Japanese yen were to change from 80 per dollar to 70

per dollar, would the Australian balance of payments improve (become more positive)

or not? Consider what effect the exchange rate change would have both on Australian

exports to and imports from Japan, as well as on purchase decisions made by

manufacturers or importers located in other countries.

12.10 Exchange rates: Assume that Australia and Canada are both initially in an economic recession and that Australia begins to recover before Canada. What would you expect to happen to the Australian dollar - Canadian dollar exchange rate? Why?

12.15 Capital flows: How can government intervention affect the exchange value of a

currency? Will the currency generally rise or fall if a government sells assets to

foreigners?

12.16 Inflation and exchange rates: How does inflation affect a country's spot and

forward exchange rates? Why? Is it absolute inflation or inflation relative to other

countries that is important?