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JEOPARDY

JEOPARDY. JEOPARDY. Arbitrage This!!. Facts & Figures. Credits & Debits. Model Behavior. Potpourri. $100. $100. $100. $100. $100. $200. $200. $200. $200. $200. $300. $300. $300. $300. $300. $400. $400. $400. $400. $400. $500. $500. $500. $500. $500.

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JEOPARDY

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  1. JEOPARDY

  2. JEOPARDY Arbitrage This!! Facts & Figures Credits & Debits Model Behavior Potpourri $100 $100 $100 $100 $100 $200 $200 $200 $200 $200 $300 $300 $300 $300 $300 $400 $400 $400 $400 $400 $500 $500 $500 $500 $500 Final Jeopardy

  3. $100 Arbitrage This!! PPP implies that if inflation in the US is 4% while inflation in Europe is 2%, this should happen. The dollar should depreciate by 2% against the Euro. Return to Board

  4. $200 Arbitrage This!! Suppose that the dollar is expected to depreciate. UIP suggests that this should happen to US interest rates They should increase by the expected percentage change in the exchange rate Return to Board

  5. $300 Arbitrage This!! UIP combined with PPP suggests this about inflation adjusted interest rates. Real (inflation adjusted) interest rates should be equalized across countries. Return to Board

  6. $400 Arbitrage This!! Consider the following exchange rates EUR/USD = $1.50 JPY/USD = $ .001 JPY/EUR = E .002 You could make money by doing this. Use Yen to buy Euros (the Euro is undervalued), use Euros to buy $ (the Euro is overvalued relative to $) Return to Board

  7. $500 Arbitrage This!! Suppose that Americans spend 80% of their income on services while Europeans spend 50% on services. A 10% worldwide increase in the cost of services would do this The US would experience a real appreciation of 3% against the Euro Return to Board

  8. $500 Arbitrage This!! For Simplicity, assume that all prices are initially 1. The following year we have the following. Return to Board

  9. Facts & Figures $100 For most of the modern era, international financial markets have operated under this standard The Gold Standard Return to Board

  10. Facts & Figures $200 Trade in these “garage sale” assets dominates currency markets Swaps Return to Board

  11. Facts & Figures $300 $2 Billion dollars per day is roughly the size of this US Trade Deficit Return to Board

  12. Facts & Figures $400 This pair of financial economists revolutionized the field of option pricing Fischer Black and Myron Scholes Return to Board

  13. Facts & Figures $500 The Euro is currently selling for $1.28. If Eurozone interest rates are 4% while US interest rates are 3%, this should be the price of a 1 year Euro forward contract $1.267 Return to Board

  14. Credits and Debits $100 US investors currently hold over $1T in foreign investments. Interest paid on these assets would show up as this in the current account A credit (+) in Net Factor Payments (Income earned abroad) Return to Board

  15. Credits and Debits $200 A positive entry in the financial account refers to this Capital Inflow Return to Board

  16. Credits & Debits $300 There has been talk of the Fed stepping in to increase the value of the dollar. This transaction would be recorded in this section of the BOP US Official Reserve Assets Return to Board

  17. Daily Double Return to Board

  18. Daily Double: Debits & Credits An American MNC acquires a foreign subsidiary. This transaction would look like this in the BOP (Two entries) (+) Foreign Acquisition of US Private Assets (-) FDI Return to Board

  19. Credits and Debits $500 US Aid to developing countries shows up like this in the BOP A debit (-) in Net Unilateral Transfers Return to Board

  20. Model Behavior $100 In the monetary model with flexible prices, this market takes center stage. Money Market (Commodity Market) Return to Board

  21. Model Behavior $200 The portfolio balance model can be distinguished from other exchange rate models by this unique feature PPP and UIP do not hold Return to Board

  22. Model Behavior $300 A 10% contraction of the US money supply would result in this if commodity prices are fully flexible A 10% dollar appreciation Return to Board

  23. Model Behavior $400 If commodity prices are fixed and capital is perfectly mobile, a 5% increase in the US money supply would cause this in the short run. A depreciation (both real and nominal) of more than 5% Return to Board

  24. Model Behavior $500 Currency prices tend to be extremely volatile. According to the monetary approach with flexible prices, this volatility is a result of this Relative price changes Return to Board

  25. Potpourri $100 This name could refer to an economic curve describing the relationship between exchange rates and trade balances or the sidekick to a pudgy, silent, stoner Jay Return to Board

  26. Potpourri $200 A Nobel Laureate was the topic of this 2001 Oscar winner A Beautiful Mind Return to Board

  27. Potpourri $300 If trade balances are all that matter for currency prices, then this is the source of volatility in currency markets Low demand/supply elasticity Return to Board

  28. Potpourri $400 If the elasticity of imports for the US is 3, this would need to happen to generate a 10% decline in US import expenditures. A 5% nominal depreciation Return to Board

  29. Potpourri $500 The necessary conditions for the J-Curve were developed by this pair of economists Marshall and Lerner Return to Board

  30. Final Jeopardy

  31. Final Jeopardy Any general equilibrium model of exchange rates should contain interactions between these five markets

  32. Final Jeopardy Home money market Foreign money market Home bond market Foreign bond market Currency market

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