Examples of euro in the following topics:
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- We calculated: $\left( \frac{2\text{ km}}{\euro 1} \right)\left( \frac{\euro 0.714}{\ 1} \right)=1.428 \frac{\text{km}}{\ 1}$
- $\left( \frac{2\text{ km}}{\euro 1} \right)\left( \frac{\euro 1}{\text{kuna }100} \right)=1 \frac{\text{km}}{\text{kuna }50}$
- Step 1: Trader converts the convertible markets into euros, calculated below:
- Step 2: Trader converts the euros into Croatian kunas, shown below:
- It can trade euros for U.S. dollars, causing the U.S. dollar to appreciate and the euro to depreciate.
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- For example, one U.S. dollar equals 1.5 euros.
- Now multiply the ratios by 1,500 euros.
- Ratio for Equation 4 is wrong because the euro currency units become squared.
- If the U.S. dollar appreciated, then the euro automatically depreciated.
- Thus, the U.S. dollar depreciated while the euro appreciated.
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- Thus, the exchange rate equals U.S. dollars per euro.
- $\dot{s}=\left ( \dot{m}_{\text{U.S.}}^{ S} -\dot{m}_{\text{euro}}^{S} \right )+\left ( \dot{v}_{\text{U.S.}} -\ dot{v}_{\text{euro}} \right )+\left ( \dot{y}_{\text{euro}} -\dot{y}_{\text{U.S.}} \ right )$
- If the velocities for money do not change (i.e. equal zero), subsequently, the euro should appreciate by 2% against the U.S. dollar.
- Consequently, the higher real income and a slower expanding money supply strengthen the euro.
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- For example, if the U.S. dollar-euro exchange rate equals $1.3 per euro today, then we expect the exchange rate to be $1.3 per euro tomorrow plus a random fluctuation.
- We show the monthly U.S. dollar-euro exchange rate in Figure 1.
- We show the first difference for the U.S dollar-euro exchange rate in Figure 2.
- Moreover, statistical tests indicate the U.S. dollar-euro exchange rate is almost a random walk. ( The U.S. dollar-euro exchange rate has the structure, $s_t=p_1s_{t-1}+p_2s_{t-2}+e_t$, where $p_1$ is close to one while $p_2$ has a significant second lag.
- First difference of the U.S. dollar per euro exchange rate
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- An investor buys a currency futures contract for $1 = 1.5 euros from a bank for 150,000 euros.
- Who pays and how much into a margin account if the exchange rate changes to $1 = 1 euro?
- Swap's face values are $100 million and 110 million euros with a coupon interest of 3% for U.S. dollars and 4% for the euros.
- Current discount rates are 5% APR for the U.S. and 6% APR in Europe while the current spot exchange is St = $1.2 / euro.
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- Value of the contract on the spot market equals $150,000\text{ euro}\frac{\ 1}{1\text{ euro}}=\ 150,000$ .
- Value of the futures contract is $150,000\text{ euro}\frac{\ 1}{1.5\text{ euro}}=\ 100,000$.
- Coupon payments are $1.5 million and 2.2 million euros respectively.
- Implicit exchange rate is $1.5 million ÷ 2.2 million euros, which equals $0.682 per euro.
- $\text{Swap Value}=107.9\text{ million } \euro \cdot \frac{\ 2.20}{1 \euro}-\ 98.1\text{ million}=\ 31.4\text{ million}$
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- $NPV=-2,000\euro \left( 4.00\text{ rm}/ \euro\right)+\frac{?
- \euro \left( 4.25\text{ rm}/ \euro \right) }{(1+0.04)^1}+\frac{?
- \euro \left( 4.50\text{ rm}/ \euro \right) }{(1+0.04)^2}+\frac{?
- \euro \left( 5.00\text{ rm}/ \euro \right) }{(1+0.04)^3}$
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- Thus, your profit would fluctuate between 180,000 and 420,000 euros, computed below:
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- For example, you invested 20,000 euros into Greece, and you expect to earn $8,000 each year for Year 1, Year 2, and Year 3.Nevertheless, you could invest your money into your country's financial markets that earn a 5% APR.
- Euro begins plunging against the U.S. dollar causing the exchange rates to change to below:
- We calculate the net present value of -$9,764.60 in Equation 30.Our investment became a disaster because we earned a negative return because the euro had depreciated.