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Chapter1

3.Howcanachangeininterestratesaffecttheprofitabilityoffinancialinstitutions?

Achangeininterestratesaffectsthecostofacquiringfundsforfinancialinstitutionaswellaschangestheincomeonassetssuchasloans,bothofwhichaffectprofits.Inaddition,changesininterestratesaffectthepriceofassetssuchasstockandbondsthatthefinancialinstitutionownswhichcanleadtoprofitsorlosses.

7.HowdoesadeclineinthevalueofthepoundsterlingaffectBritishconsumers?

ItmakesforeigngoodsmoreexpensiveandsoBritishconsumerswillbuylessforeigngoodsandmoredomesticgoods.

1.ThefollowingtablelistsforeignexchangeratesbetweenUSdollarsandBritishpoundsduringApril.

Date

USDollarsperGBP

Date

USDollarsperGBP

4/1

1.9564

4/18

1.7504

4/4

1.9293

4/19

1.7255

4/5

1.914

4/20

1.6914

4/6

1.9374

4/21

1.672

4/7

1.961

4/22

1.6684

4/8

1.8925

4/25

1.6674

4/11

1.8822

4/26

1.6857

4/12

1.8558

4/27

1.6925

4/13

1.796

4/28

1.7201

4/14

1.7902

4/29

1.7512

4/15

1.7785

Whichdaywouldhavebeenthebestdaytoconvert$200intoBritishpounds?

Whichdaywouldhavebeentheworstday?Whatwouldbethedifferenceinpounds?

Solution: Thebestdayis4/25.Atarateof$1.6674/pound,youwouldhave￡119.95.

Theworstdayis4/7.At$1.961/pound,youwouldhave￡101.99,oradifferenceof￡17.96

Chapter2

2.IfIcanbuyacartodayfor$5,000anditisworth$10,000inextraincomenextyeartomebecauseitenablesmetogetajobasatravelinganvilseller,shouldItakeoutaloanfromLarrytheLoanSharkata90%interestrateifnooneelsewillgivemealoan?WillIbebetterorworseoffasaresultoftakingoutthisloan?Canyoumakeacaseforlegalizingloan-sharking?

Yes,Ishouldtakeouttheloan,becauseIwillbebetteroffasaresultofdoingso.Myinterestpaymentwillbe$4,500(90%of$5,000),butasaresult,Iwillearnanadditional$10,000,soIwillbeaheadofthegameby$5,500.SinceLarr