Exchange Rate Determination

1. Why are exchange rates so volatile and change a lot (the question is general, not specific to the recent events, in other words the question asks
why the exchange rates change all the times, what are the reasons)? What are the general factors affecting the exchange rate and causing price of
different currencies to change?
2. How would the inflation in U.S. affect the price of dollar (the exchange rate between dollar and other currencies)?
3. What factors did affect the price of British Pound last year?
Currency Derivatives
4. Why might a firm purchase futures contracts instead of forward contracts?
5. Explain the ways that a speculator can make profits in the futures market.
6. When should a speculator purchase a put option denominated in Australian dollars?








Sample Solution