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Under-valuation or Overvaluation of currency could be with respect to goods and services

Taking for instance US, over valued US dollars would mean that buying goods and services in the US will be more expensive when compared to what the same dollar amount would fetch for goods and services in China (where currency is undervalued). A tourist would have more bargain for his bucks shopping in China than in the US.

Also, the effect of this is that cost of production in the US would be high and manufacturers would only make little profits from exports/sale of its goods and services. Conversely, in China, the undervaluation of their currency allows for cheap production of goods and expansion of their export market.

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Why might some countries be reluctant to adopt a common currency?

The most important reason is concern that the value of the currency will be more easily affected by factors outside the country's control.


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Generally, yes, because most countries use flexible exchange rates and so arbitrage ensures that the value of a currency is determined accurately (i.e. if the currency was overvalued for some reason, experienced for-ex traders would realise and cause it to fall). If the exchange rate is fixed you can't tell if it's valued correctly because it is usually pegged on another exchange rate (so if the other currency depreciates the government will make sure that their currency depreciates). This means that the value of the exchange rate doesn't reflect what is going on in the economy, it reflects what is going on in the other economy.


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Some examples of CAPM questions that test understanding of the Capital Asset Pricing Model include: Explain the concept of systematic risk and how it is measured in the CAPM. Calculate the expected return on a stock using the CAPM formula. Discuss the assumptions underlying the CAPM and their implications for its applicability in real-world scenarios. Compare and contrast the CAPM with other models used to estimate the expected return on an investment. Analyze a scenario and determine whether a stock is undervalued or overvalued based on its expected return calculated using the CAPM.


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In most cases, you cannot exchange expired currency for its face value, as it is no longer considered legal tender. However, some central banks or financial institutions may allow the exchange of expired currency for a limited time after its expiration. It's advisable to check with your country's central bank or relevant financial authority for specific policies regarding expired currency.

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