Assume that you expect that the Bank Negara Malaysia (BNM) may increase the interest rate which will lead to appreciation of Malaysian Ringgit (MYR). However, you also foresee that US is likely to continue its quantitative easing (QE) that will lead to the depreciation of its currency. You would like to take profit from your expectation and the following are the quotations of the foreign exchange from the bank. Bid Offer USD/MYR GBP/USD 4.1580 4.1620 1.3495 1.3500 a) If you have no constraint on your investment capital, determine your strategy to take profit based on your expectation. b) If USD/MYR falls to 4.000 after few days. Calculate your profit/loss if you borrow USD100,000from your broker to speculate the currency based on your expectation.

Assume that you expect that the Bank Negara Malaysia (BNM) may increase the interest rate which will lead to appreciation of Malaysian Ringgit (MYR). However, you also foresee that US is likely to continue its quantitative easing (QE) that will lead to the depreciation of its currency. You would like to take profit from your expectation and the following are the quotations of the foreign exchange from the bank. Bid Offer USD/MYR GBP/USD 4.1580 4.1620 1.3495 1.3500 a) If you have no constraint on your investment capital, determine your strategy to take profit based on your expectation. b) If USD/MYR falls to 4.000 after few days. Calculate your profit/loss if you borrow USD100,000from your broker to speculate the currency based on your expectation.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter29: Exchange Rates And International Capital Flows

Section: Chapter Questions

Problem 25CTQ: If a countrys currency is expected to appreciate in value, what would you think will be the impact...

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