INO Exchanges (Global Foreign Exchange)

Click on the "Foreign Exchange" category in the left column navigation bar. Then, click on the EURUSD (Euro and U.S. Dollar) link. Under the graph, select either the 1-month or 6-month chart range option to feature the past EURUSD (Euro and U.S. dollar) exchange rate movements. Note that the Euro exchange rates are expressed in "US$ per Currency" terms.

• Calculate how much the U.S. dollar has appreciated or depreciated against the Euro over the last 6 months.
• Explain why a strengthening U.S. dollar might be good news for U.S. importers.
• Explain why U.S. automotive manufacturers are concerned about a potential weakening of the Japanese yen. How would this affect the U.S. "balance of trade"?
  

Bond Markets

Examine CNN Financial Network's list of prices and yields on U.S. Government securities.
a. What is today's yield on one-year Treasury Bills?
b. Has the price of one-year Treasury Bills risen or fallen?
c. Is the yield on one-year corporate bonds be likely to be higher or lower than the yield on a one-year Treasury Bill? Explain.

Present Discounted Value

The Present Value Calculator provided by TimeValue Software, computes the present value of a given future balance.
a. Use this calculator to compute the present discounted value of $1,000 that is received in 5 years when the interest rate is 5% (enter dates in the MM-DD-YR format and be sure that the year is incremented by 5).
b. Repeat (a), but assume that the interest rate is 10%. How does an increase in the interest rate affect the present discounted value of a future payment?
c. Repeat (a), but assume that the payment is received in 10 years. How does this affect the present discounted value of this payment?

Bond Prices and Interest Rates

The interest rate and bond price calculator provided by FinanCenter allows you to compute the effect of alternative interest rates on bond prices.
a. Use this calculator to determine the current value of a bond with a face value of $1,000, a coupon rate of 10% and a two-year maturity when the interest rate is 10%. (Assume that you paid the face value for this bond).
b. Repeat step (a), but change the market interest rate to 5%. What happens to the value of this bond? Based on the discussion in your text, explain this result.