Homework Answers
Hello Sir/ Mam
Interest rate parity says that the currency for which the interest rates are lower, should be trading at a forward premium by the difference of rates.
As here, U.S.rates are close to 0, and Russian interest rates are very high, hence, Russian ruble will be at forward discount against USD by the rate approximately equal to the Russian Interest Rates.
I hope this solves your doubt.
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If the US interest rate is close to zero, while the interest rate of Russia is very high, what would interest rate parity suggest about the forward rate of the Russian ruble? Explain.
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5. Suppose the interest rate in the US is 2% and the interest rate in Russia...
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Assume that uncovered interest rate parity holds between the Japanese yen and the U.S. dollar. If today the 1-year riskless interest rate in Japan is 5%, the one-year riskless interest rate in the U.S. is 1%, and the spot exchange rate is $.01 per yen, what is the expected exchange rate one-year from today? Suppose that expected inflation in the U.S. increased. What would happen to the current (spot) exchange, i.e. will it increase or decrease? Explain your reasoning.
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