Complete the Week One Homework assignments listed below and submit your solutions in a single document. Be sure to use references and document your sources using proper APA style.
The fictional country of Comparativo Advantasia can produce seven pounds of food or four yards of textiles per unit of input.
- Compute the opportunity cost of producing food instead of textiles.
- Similarly, compute the opportunity cost of producing textiles instead of food.
Describe the advantages and disadvantages of the gold standard.
What is the difference between the retail or client market and the wholesale or interbank market for foreign exchange?
Cray Research sold a supercomputer to the Max Planck Institute in Germany on credit and invoiced €10 million payable in six months. Currently, the six-month forward exchange rate is $1.10/€ and the foreign exchange advisor for Cray Research predicts that the spot rate is likely to be $1.05/€ in six months.
- What is the expected gain/loss from the forward hedging?
- If you were the financial manager of Cray Research, would you recommend hedging this euro receivable? Why or why not?
- Suppose the foreign exchange advisor predicts that the future spot rate will be the same as the forward exchange rate quoted today. Would you recommend hedging in this case? Why or why not?