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eco-Suppose the CFO of a German corporation with surplus cash flow has 1 million Euros

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Question;Analyze very briefly.;1);Suppose the CFO of a German corporation with surplus cash flow has 1 million;Euros to invest. Suppose that interest rates on 1-year CD deposits in US banks;are 2%, while rates on 1year CD deposits denominated in euros in German banks;are currently 4.5%. Suppose further that the CFO expects that the (euro/$);exchange rate will increase from 1euro per $ to 1.1 euros per $ during the;coming year. Should the CFO invest in CD's denominated in dollars or in euros?;Show your work to substantiate your response as credible! 5;pts.;2) Explain why the Fed must normally add;reserves to the banking system via open market operations on most days in order;to maintain its interest rate target in the Fed Funds market. You refer to its current reduction in the;federal fund rate cut to 0.25% that you have seen in recent months. 5 pts.;3) Visit the home page of the Federal;Reserve Systems of the central bank of US at www.federalreserve.gov and read the;key objectives of the Fed to stabilize the macroeconomic crises of the US;economy (you have to look for the links from the home page of the Fed?s;websiste- click on the tab ?About the Fed? and read through the contents).;Based on the information on monetary policy objectives and tools, answer the;following question 3A.;For: Policy objectives/purpose: The specific;url under the tab about the Fed (Item2): http://www.federalreserve.gov/pf/pf.htm;For Policy tools: The specific url under the;tab Monetary Policy is (the listed thread is policy tools): http://www.federalreserve.gov/monetarypolicy/default.htm;Under that, find the link for Mission;3A) What are the key objectives and what are;the conventional monetary policy tools does the Fed use to achieve those;objectives? 5;pts..;3B) Read the speech of the Fed Chairman Ben;Bernanke he delivered on Oct 18, 2011 at the Federal reserve bank of Boston;which is available at this url link http://www.federalreserve.gov/newsevents/speech/bernanke20111018a.htm;After reading the contents of his speech;topic, ?The Effects of the Great Recession on the Central Banks? Doctrine and;Practice?, critically and briefly analyze the direction of changes in monetary;policy practice of the Federal Reserve from its conventional monetary policy;framework in the wake of the great recession the US economy currently faces. 5;pts;4) In the first quarter of 2009, President;Obama pushed his massive fiscal stimulus package of $862 (It was originally at;$787 billion) through the Congress and later passed by the House and the;Senate, whose centerpiece was spending most of this stimulus funds in repairing;and building infrastructure in transportation, healthcare, science and;technology, and education. Obama also urged to make a modest tax cut for;middle-income families making a household income less than $250K per year. The;push for this combined package of spending and partial tax cut was also;criticized by several opponents in politics, academia, and businesses on the;ground that the spending was too large under government financing to balance;the growing budget deficit and debt that might threaten future economic stability;of the country.;4) A);What possible macroeconomic arguments might President Obama use to defend his;$862 billion fiscal stimulus package as a part of his economic recovery plans?;5 pts.;B) Why do;you think the critics were so much concerned that this stimulus package might;be bad economic policy, and not just for the US, but for the world economy?;Does it sound to have a trickle down adverse effect in the current or future;financial stability in the US and the World economy, say later in 2011? Do you;think this issue is also related to the current political rhetoric between the;GOP and Democrats on raising the debt ceiling over $16 trillion? (New debt;ceiling proposed by Pres. Obama on Jan 12, 2012: http://www.foxnews.com/politics/2012/01/12/obama-requests-12t-increase-in-debt-ceiling/)? 5;pts.;C) What;would happen to the growth rate of the money supply if foreigners lost;confidence in the US dollar as a result of recent financial crisis in the US;economy and the Fed was trying nonetheless to maintain its current historic low;federal funds rate target? Explain briefly.;5;pts.;d)Using the Keynesian;Cross model diagram (The diagram with 45 degree line by splitting AD (C+I+G+NX);on the vertical axis and RGDP on the horizontal axis, See in Ch. 9,10 & 13;of the textbook) and equation, critically and briefly illustrate the short run;and long run economic impact of Obama?s stimulus package of $862 billion.;(Hint: The impact will be in terms of major macroeconomic variables of US;economy such as GDP growth, unemployment rate, interest rates, and inflation.) 5 pts.

 

Paper#55609 | Written in 18-Jul-2015

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