Economics_Assignment


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Economics_Assignment 1 answer below » Economics_Assignment Document Preview: Name ____________________ GEMBA 8 ASSIGNMENT ECONOMICS The individual assignment is composed of two parts, Macroeconomics and Microeconomics Please answer to each relevant part in writing, and then upload the file (.doc or .pdf) on the course website. You can add graphs or formulas as you consider it appropriate to clarify your arguments. The deadline is set for June 29th, 9.00am CET. Buon lavoro!
ASSIGNMENT – MACROECONOMICS TOTAL 30 POINTS (50% OF View complete question » Economics_Assignment Document Preview: Name ____________________ GEMBA 8 ASSIGNMENT ECONOMICS The individual assignment is composed of two parts, Macroeconomics and Microeconomics Please answer to each relevant part in writing, and then upload the file (.doc or .pdf) on the course website. You can add graphs or formulas as you consider it appropriate to clarify your arguments. The deadline is set for June 29th, 9.00am CET. Buon lavoro!
ASSIGNMENT – MACROECONOMICS TOTAL 30 POINTS (50% OF TOTAL GRADE) Since September 2014 the euro has devalued 20% against the US dollar (from 1.3 to 1.05$/€), and then regained some value in April 2015 back to a peak of 1.15$/€. After that event, the euro has dropped again to 1.1$/€. Given the above scenario, the manager of a European company has to close a major contract in October with a foreign customer. The contract is denominated in US dollars. The problem is whether or not (or to what extent) the manager should hedge this contract against a further depreciation of the Euro, which would increase the costs of the contract undermining its profitability. 1. Explain what, according to your knowledge and the information that you can collect through the major financial press, has been the reason for the initial drop of the Euro vs. the USD, the reasons for the subsequent spike in the euro and the subsequent drop (hint: look at the Uncovered Interest Parity but also at the behaviour of the FED vs. ECB and the related quantitative easing strategies). 2. Based on the information you have been able to gather and your economic knowledge, what is the likely range of value of the EUR/USD in October 2015? (hint: assign probabilities to different scenarios /ranges of value). 3. Given the above probability estimates, and knowing that hedging is expensive, would you proceed in building a financial hedging strategy for the contract?
4. Assume that the financial hedging strategy is too costly to get approved by your Board. Can you think at a ‘natural’ hedge existing on the market, ie… Attachments: GEMBA8-Econom….pdf View less » Jun 25 2015 07:46 PM

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