【正文】 ent. b. Explain how WalMart might utilize the international money market when it is establishing other WalMart stores in Asia. ANSWER: WalMart may need to maintain some deposits in the Eurocurrency market that can be used (when needed) to support the growth of WalMart stores in various foreign markets. When some WalMart stores in foreign markets need funds, they borrow from banks in the Eurocurrency market. Thus, the Eurocurrency market serves as a deposit or lending source for WalMart and other MNCs on a shortterm basis. c. Explain how WalMart could use the international bond market to finance the establishment of new outlets in foreign markets. ANSWER: WalMart could issue bonds in the Eurobond market to generate funds needed to establish new outlets. The bonds may be denominated in the currency that is needed。s intervention by immediately selling 300 futures contracts on British pounds (with a value of about $30 million). Such actions caused even more panic in the futures market. a. Explain why the central bank s intervention caused such panic among currency futures traders with buy positions. ANSWER: Futures prices on pounds rose in tandem with the value of the pound. However, when central banks intervened to support the dollar, the value of the pound declined, and so did values of futures contracts on pounds. So traders with long (buy) positions in these contracts experienced losses because the contract values declined. b. Explain why the floor broker s willingness to sell 300 pound futures contracts at the going market rate aroused such concern. What might this action signal to other brokers? ANSWER: Normally, this order would have been sold in pieces. This action could signal a desperate situation in which many investors sell futures contracts at any price, which places more downward pressure on currency future prices, and could cause a crisis. c. Explain why speculators with short (sell) positions could benefit as a result of the central bank s intervention. ANSWER: The central bank intervention placed downward pressure on the pound and other European currencies. Thus, the values of futures contracts on these currencies declined. Traders that had short positions in futures would benefit because they could now close out their short positions by purchasing the same contracts that they had sold earlier. Since the prices of futures contracts declined, they would purchase the contracts for a lower price than the price at which they initially sold the contracts. d. Some traders with buy positions may have responded immediately to the central bank s intervention by selling futures contracts. Why would some speculators with buy positions leave their positions unchanged or even increase their positions by purchasing more futures contracts in response to the central bank s intervention? ANSWER: Central bank intervention sometimes has only a temporary effect on exchange rates. Thus, the European currencies could strengthen after a temporary effect ca。 it has typically depreciated from one year to the next, but the degree of depreciation has varied substantially. The bid/ask spread tends to be wider for the peso than for currencies of industrialized countries. a. Identify the most obvious economic reason for the persistent depreciation of the peso. ANSWER: The high inflation in Mexico places continual downward pressure on the value of the peso. b. High interest rates are monly expected to strengthen a country’s currency because they can encourage foreign investment in securities in that country, which results in the exchange of other currencies for that currency. Yet, the peso’s value has declined against the dollar over most years even though Mexican interest rates are typically much higher than . interest rates. Thus, it appears that the high Mexican interest rates do not attract substantial . investment in Mexico’s securities. Why do you think . investors do not try to capitalize on the high interest rates in Mexico? ANSWER: The high interest rates in Mexico result from expectations of high inflation. That is, the real interest rate in Mexico may not be any higher than the . real interest rate. Given the high inflationary expectations, . investors recognize the potential weakness of the peso, which could more than offset the high interest rate (when they convert the pesos back to dollars at the end of the investment period). Therefore, the high Mexican interest rates do not encourage . investment in Mexican securities, and do not help to strengthen the value of the peso. c. Why do you think the bid/ask spread is higher for pesos than for currencies of industrialized countries? How does this affect a . firm that does substantial business in Mexico? ANSWER: The bid/ask spread is wider because the banks that provide foreign exchange services are subject to more risk when they maintain currencies such as the peso that could decline abruptly at any time. A wider bid/ask spread adversely affects the . firm that does business in Mexico because it increases the transactions costs associated with conversion of dollars to pesos, or pesos to dollars. 9 14. Aggregate Effects on Exchange Rates. Assume that the United States invests heavily in government and corporate securities of Country K. In addition, residents of Country K invest heavily in the United States. Approximately $10 billion worth of investment transactions occur between these two countries each year. The total dollar value of trade transactions per year is about $8 million. This information is expected to also hold in the future. Because your firm exports goods to Country K, your job as international cash manager requires you to forecast the value of Country K’s currency (the ―krank‖) with respect to the dollar. Explain how each of the