The interest rate differential is euro interest rate - pound interest rate = 4.04% - 2% = 2%. The expected depreciation is (1.575 - 1.5)*100/1.5 = 5%. Hence under the UIP condition the two rates should be same so euro should depreciate by 2 percent
Select 2 percent depreciation.
Given the information above about the Dutch investor, and if Uncovered Interest Rate Parity holds, what...
Given that the spot rate is 1.5 euros per pound and the forward euro-pound exchange rate is 1.575 euros per pound calculate the forward premium discDunt on the British pound and indicate which of the two it is. Consider a Dutch investor with 1 000 euros to pace in a bank deposit in either the Netherlands or Great Britain. The one-year interest rate on bank deposits is 2% in Britain and 4.04% in the Netherlands. The one year forward euro-pound...
Consider a Spanish investor with 5,000 euros to place in a bank deposit in either Spain or Great Britain. The (one-year) interest rate on bank deposits is 3% in Britain and 4.5% in Spain. The (one-year) forward euro-pound exchange rate is 1.7 euros per pound and the spot rate is 1.6 euros per pound. Answer the following questions! a) What is the euro-denominated return (i.e. the total amount of Euros) on Spanish deposits for this investor? b) What is the...
Suppose that the uncovered interest parity condition holds and the expected exchange rate between the euro and the dollar in one year is 1.50 (€1 = $1.50). Using the exact formula, determine the current EUR/USD exchange rate when the interest rate is 4% in the Euro area and 5% in the USA. (Answer using 4 decimal pla
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.
Note: Use of approximation for interest rate parity is OK. Assume the four-year annualized interest rate in the US is 9 percent and the four-year annualized interest rate in Singapore is 6 percent. Assume interest rate parity holds for a four-year horizon. Assume the spot rate of the Singapore dollar is $.60. If the forward rate is used to forecast exchange rates, What will be the forecast for the Singapore dollar’s spot rate in four years? Does this forecast imply...
2. Suppose a Canadian agent (investor) with C$1.0 million is choosing between bank deposits denominated in either euro or Canadian dollars. Also suppose that the (one-year) interest rate paid on the C$ deposits is 1% (0.01) and on the euro deposit is 2% (0.02), the (one-year) forward C$-EURO exchange rate (FC$/€ ) is 1.60 and the current spot rate (EC$/€ ) is 1.65. Based on this information, answer the following questions. (a) What is the forward spread? Is the...
Assume interest rate parity holds. The one-year risk-free rate in the U.S. is 4.02 percent and the one-year risk-free rate in Japan is 4.35 percent. The spot rate between the Japanese yen and the U.S. dollar is ¥114.33/$. What is the one-year forward exchange rate? Multiple Choice ¥117.53/$ ¥114.33/$ ¥113.97/$ ¥114.69/$ ¥116.56/$
Suppose the one-year forward $7€ exchange rate is $1.9 per euro and the spot exchange rate is $1.6 per euro. What is the forward premium on euros (the forward discount on dollars)? The forward premium on euros is 18.8 percent. (Give your answer as a percentage with one decimal and do not forget a negative sign, if appropriate.) Given the above information, what is the difference between the interest rate on one-year dollar deposits and that on one-year euro deposits...
Currently the spot exchange rate is $1.558 per pound (USD/GBP). The interest rate in the UK is 6%. The one-year forward exchange rate is $1.5200/GBP. If interest rate parity holds, what must be the US interest rate for the same period?
Assume that interest rate parity holds and that 90-day risk-free securities yield 5% in the United States and 5.3% in Germany. In the spot market, 1 euro equals $1.40. What is the 90-day forward rate? Is the 90-day forward rate trading at a premium or a discount relative to the spot rate?