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Mondelez, a US food and beverage company, is expected to receive CHF1,500,000 in 3 months...

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Finance

  1. Mondelez, a US food and beverage company, is expected to receive CHF1,500,000 in 3 months time for foodservice products from Nestle in Switzerland. The following information is available:

Spot exchange rate

USD0.98/CHF

3-month forward exchange rate

USD1.07/CHF

USD interest rate

1.75% p.a.

CHF interest rate

1.25% p.a.

What are the effects of a $500,000 sterilized foreign exchange purchase on the central banks balance sheet (assets and liabilities)? What effect does this have on the domestic currency and domestic money supply? Explain and justify your answer clearly.

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