1. Friday the dollar was trading at 116.68 yen, down from 119.45 Thursday. Sterling was at $1.7065, down from $1.7110. 1. Is the exchange rate quote for the U.S. dollar a direct or indirect quote on the (a) yen? (b) sterling (British Pound)? 2. If 1$=116 yen: which is the quoted and which is base currency? 3. From Thursday to Friday, what was the percentage change in the value of the dollar against the yen? (b) sterling?

2. CAPITAL MARKET: allocates debt and equity resources OFFSHORE FINANCIAL CENTERS: Operational (London) and Booking (islands) INTERBANK (LIBOR) rates HEDGING - insurance ARBITRAGE – instantaneous SPOT RATE – FORWARD RATE CURRENCY OPTION

3. $1 = ¥120 Base currency is $, quoted currency is ¥. Direct quote on ¥, indirect quote on $. ¥1 = $0.00833 $ is quoted currency & direct quote Direct quote = 1/Indirect quote Indirect quote = 1/Direct quote

4. PERCENT CHANGE *YIELD IS ON BASE CURRENCY January $1=D5, May $1=D4 % Change= (Pn-Po)/Po x 100 (4-5/5) x 100 = -20%

5. MEXICO CRISIS 1994 Fast growth Portfolio investment Chiapas & assassination Rising U.S. interest rates ’94 devaluation & $50 bil. loan

6. ARGENTINA 2001-2002 Populism Hyperinflation Currency board - $ Brazil devalues in 1999 U.S. $ strong Debt crisis, Peso loses 70% of value

7. EURO DEPRECIATION ‘02 Cash under the mattress? Taxman? Police? Spain “Dinero “B” = est. $53 bil. Italy = $175 bil?