College Bowl

1. College Bowl Round #3

2. Question #1 • The employment report for February was released today. • How many new jobs were created? • What happened to the unemployment rate? • How did currency markets react?

3. Question #1 • The BLS reported that 262,000 new jobs were created in February. • The unemployment rate, however, increased to 5.4% • Currency markets were not pleased. The dollar dropped from 1.30 to 1.32 per Euro

4. Question #2 • Suppose the US and Europe are both following a gold standard with the following prices: P = $40 P* = E30 What is the EUR/USD exchange rate? EUR/USD = 1.33 (USD/EUR = .75)

5. Question #3 • Suppose the US and Europe are both following a gold standard with the following prices: P = $40 P* = E30 If the current exchange rate is $1.40 per Euro, in which direction will gold be flowing? Gold should flow into Europe as investors buy gold in the US, sell it Europe and then covert the Euros back to dollars

6. Question #4 • In what way did the Bretton Woods system differ from the classical gold standard? Unlike the classical system where everybody pegged to gold, under the Bretton Woods, Europe pegged to the dollar.

7. Question #5 • Explain how the gold standard stabilized international trade balances. Trade deficit countries would see a gold outflow and a contraction of their money supply. This would lower domestic prices which would make domestic goods cheaper relative to foreign goods.

8. Question #6 • How did George Soros bring down the British Pound in 1992? What was the pound pegged to? Recognizing that the pound was overvalued, Soros began shorting British assets and converting the proceeds into Dollars. This glut of pounds in currency markets forced the Bank of England to use its reserves to maintain its peg to the ECU. With reserves eventually running low, the Bank was forced to devalue. George Soros made a 1 day profit of $1B

9. Question #7 • Explain the following statement: “You can defend an appreciating currency forever, but maintaining a depreciating currency is an exercise in futility.” Defending an appreciating results in an increase in reserves while maintaining a depreciating currency results is a loss of reserves.

10. Question #8 • Suppose that the dollar is pegged to the Euro. The US dips into a recession and the dollar begins to depreciate. The Fed needs to defend the dollar, but does not want to contract the money supply. Describe the necessary transactions. What is this procedure called? A purchase of one’s currency in currency markets along with a corresponding purchase of domestic securities leaves the money supply unchanged. This is called sterilizing the intervention.

11. Question #9 • Suppose that the US is pegging to Japan. What action would the fed need to take given a deflation in Japan? If Japanese inflation is lower than the US, the dollar should depreciate against the Yen in the Long Run (PPP). The US would need to buy dollars (this would contract the US money supply if it was not sterilized).

12. Question #10 • The US is pegging to the British pound. How would the Fed need to respond to ever rising government deficits? This depends on capital mobility. As long as the US can find willing capital to finance these deficits, the dollar can actually appreciate. However, if foreign investment slows down, a currency purchase will be required.

13. Lightning Round – Movie Quotes “Now then we need to go over some ground rules. You are to refrain from any acts of violence including verbal assault and vulgar hand gestures. You may not use rage enhancing substances, such as caffeine, nicotine, alcohol, crack cocaine, slippy-flippy's, jelly stingers, trick sticks, bing bangs or flying willards” Anger Management (2003)

14. Lightning Round – Movie Quotes “Prepare ship for ludicrous speed! Fasten all seatbelts, seal all entrances and exits, close all shops in the mall, cancel the three ring circus, secure all animals in the zoo!” Spaceballs (1987)

15. Lightning Round – Movie Quotes “Not that I condone fascism, or any -ism for that matter. -Ism's in my opinion are not good. A person should not believe in an -ism, he should believe in himself. I quote John Lennon, "I don't believe in The Beatles, I just believe in me." Good point there. After all, he was the walrus. I could be the walrus and I'd still have to bum rides off of people.” Ferris Bueller’s Day Off (1986)

16. Lightning Round – Movie Quotes “We're consumers. We are by-products of a lifestyle obsession. Murder, crime, poverty, these things don't concern me. What concerns me are celebrity magazines, television with 500 channels, some guy's name on my underwear. Rogaine, Viagra, Olestra.” Fight Club (1999)

17. Lightning Round – Movie Quotes “Think big, think positive, never show any sign of weakness. Always go for the throat. Buy low, sell high. Fear? That's the other guy's problem. Nothing you have ever experienced will prepare you for the unlimited carnage you are about to witness.” Trading Places (1983)

18. Lightning Round – Movie Quotes “If my calculations are correct, when this baby hits eighty-eight miles per hour... you're gonna see some serious s%$t.” Back to the Future (1985)

19. Lightning Round – Movie Quotes “Someday - and that day may never come - I'll call upon you to do a service for me. But until that day, accept this justice as gift on my daughter's wedding day.” Godfather (1972)

20. Lightning Round – Movie Quotes “It's not a question of enough, pal. It's a zero sum game, somebody wins, somebody loses. Money itself isn't lost or made, it's simply transferred from one perception to another.” Wall Street (1987)

21. Lightning Round – Movie Quotes “And there is no such thing as a no sale call. A sale is made on every call you make. Either you sell the client some stock or he sells you a reason he can't. Either way a sale is made, the only question is who is gonna close? You or him?” Boiler Room(2000)

22. Lightning Round – Movie Quotes “love the smell of commerce in the morning” Mall Rats (1995)