MID TERM TEST

1. What the different between domestic corporation and multinational corporation?

The different between domestic corporation and multinational corporation
a. Domestic corporation is a business unit that operational level and its market share
only in a region without passing through the state border. These types of companies is
still a simple and not complex because only take into account variables prevailing in
the surrounding areas only ranging from small compensation, corporate culture, labor
recruitment, market analysis and etc.
b. Multinational Corporation is a company that has several factories stand in different
countries. Adjustments to the culture of its country entered was a must in order to
survive and be successful. With many established production unit in other countries
are expected to save on the cost of the cost of production and distribution of pruducts
up to the hence of the end consumer
2. Why do investors invest their capital in foreign markets?
Because it gives the investors a chance to take advantage of favorable economic
conditions, when they expect foreign currencies to appreciate against their own, and to
reap the benefits of international diversification
3. Mention the factor influencing international exchange rate?
Relative Inflation Rates, Relative Interest rate, Relative Income Levels, Government
Controls, Expectations, Interaction of Factors, and How factors have influenced exchange
rates
4. Describe the Exchange rate system used by various government
a. Fixed exchange rate system, in a fixed exchange rate system, exchange rate are either
held constant or allowed to fluctuate only within very narrow bands
b. Fixed floating exchange rate system, in a freely exchange rate system, exchange rate
are determined solely by market forces
c. Managed float exchange rate system, ini a managed float exchange rate system,
exchange rate are allowed to move freely on a daily basis and no official boundaries
exist. However, government may intervene to prevent the rates from moving too
much in a certain direction

d. Pegged exchange rate system, in a pegged exchange rate system, the home currencys
value is pegged to a foreign currency or to some unit of account, and moves in line
with that currency or unit against currencies
5. What is the tendency of Indonesian currency relative to US dollar recently? and why?
a. when the dollar increases, the value of rupiah will likely decrease
b. when the interest rate set by the fed, then forign investors will withdraw their
investment from Indonesia back to US. It causes inventory of dollars in Indonesia
decrease. Therefore the value of dollar will increases
6. What the different among three arbitrages?
If Locational arbitrage ensures that quoted exchange rates are similiar across banks in
different locations, triangular arbitrage ensures that cross exchange rates are set properly,
covered interest arbitrage ensures that forward exchange rates are set properly.
7. Whats the meaning of dolarization? Give an example
Dollarization is the replacement of a foreign currency with U.S. dollars. it forces the local
currency to be replaced by the U.S. dollar. dollarization attempt to peg the local
currencys value. The decision to use U.S. dollars as the local currency cannot be easily
reversed because the country no longer has a local currency.
Ex:ample From 1990 to 2000, Ecuadors currency (the sucre) depreciated by about 97
percent against the U.S. dollar. The weakness of the currency caused unstable trade
conditions, high inflation, and volatile interest rates. In 2000, in an effort to stabilize trade
and economic conditions, Ecuador replaced the sucre with the U.S. dollar as its currency.
By November 2000, inflation had declined and economic growth had increased. Thus, it
appeared that dollarization had favorable effects.
8. Whats your opinion if asean countries use there on currency whice is seano?
We disagree with this statement, bcause many country in ASEAN is development
countries where each country has complicated problem. We know that the requirement to
make one currency in region is . While, to form one currency, every country need to
control their economic and political situation. But, in the present, many countries in asean
has social discrepancy problem.
9. Please describe exchange rate system used by Indonesian government?

In managed float rate system, exchange rates are allowed to move freely on daily basis
and no official boundaries exist. Indonesian government used managed floating system,
because this system gives rupiah fluctuation keep on floating day to day, but there is an
intervention when its out from the certain limit.
10. Suppose an American tourist will be vacationing for a couple weeks in Europe. She will
be flying from paris to munich, and then back to new York. For the purpose of this
problem assumes that exchange rate will be constant and the rate she observes will be the
rates given in the table below. Upon arriving in London she will converting all $2,000 of
her spending money and converting it to british pound. While in London she spent 708.53
british pound. She then continues on her vacation to france. Naturally she need to obtain
some of the loval currency in order to make purchase. For that reason, she exchange all of
her remaining british pound for French francs. After spending 2,334.97 francs in paris,
she travels to munich, Germany and convert her remaining money to german deutch
marks.
Convert dollar Poundsterling
$2000 x 0,604266119

1208,532238

Spend in London

208,53
500,002238

Convert Punds French

500,002238 x 10,669

5334,973879

Spend in Paris

2334,97
3000,003879

Convert Franch Deutchce

3000,003879 x 0,2982

Spend in Germany

894,6011568
=

844,64

49,96114679
Convert Germany U.S
49,96115679 x 0,5201

$ 25,53488976

So, at the end of the vacation, she has $25,534