The return in Europe is 8 percent and in the United States is 12 percent. The euro is currently $1.20 USD. What should be the value of the euro in 180 days?
Future rate=Spot rate*((1+Quoted currency Risk free rate)/(1+Base currency Risk free rate))^time |
Future rate=1.2*((1+0.12)/(1+0.08))^0.5 |
Future rate(USD/EUR) = 1.22 |
The return in Europe is 8 percent and in the United States is 12 percent. The...
Consider trade in automobiles between the United States and Europe. The average European car costs €15,000. Suppose that the United States does not import any other goods and services from other countries. In March, the U.S. dollar-euro exchange rate is $1.16 per euro, and the United States imports 90,000 European cars at this exchange rate. Therefore, in March, the United States spends a total of on imported European cars. If the total value of U.S. exports is $0.52 billion, the...
Suppose that in 2010 the nominal exchange rate for the United States and Europe is $0.9/euro; by 2012, the nominal exchange rate falls to $0.8/euro. In addition, let us assume that the base year is 2010, at which consumer prices are set equal to 100. By 2012, the U.S. consumer prices increased to a level of 108, while European consumer prices increased to a level of 102. What is the real exchange rate?
There is no point in the United States complaining about trade policies in Japan and Europe. Each country has a right to do whatever is in its own best interest. Instead of complaining about foreign trade policies, the United States should let other countries go their own way and give up our own prejudices about free trade and follow suit. Discuss both the economics and the political economy of this viewpoint.
Suppose that the effective 6-month interest rate is 4.0 percent in the United States and the effective 6-month interest rate in Germany is 8 percent, and that the spot exchange rate is 1.60 USD/EUR and the forward exchange rate, with six-month maturity, is 1.58 USD/EUR. A. Clearly show whether IRP condition holds or not and explain whether there is an arbitrage opportunity for the home or the foreign investor or neither. B. Assume that an arbitrageur can borrow up to...
You are the CFO of a manufacturing company in the United States. Your company expects to receive €20 million Euro from a European customer in six months. At the same time, your company expects to pay €10 million Euro to a European supplier. The current exchange rate between US dollar and Euro is 1.13 USD/EUR. However, you are afraid that the Euro exchange rate may fluctuate and cause losses. You may use the Euro currency forward contract to hedge the...
Compare and contrast employment discrimination laws in the United States with those in Europe. What are the policy underpinnings?
47. Suppose that the United States and European Union are the only trading partners in the world. If interest rates in the United States are significantly lower than those in the European Union, we would expect the: O demand for the dollar to fall, depreciating the dollar. O supply of the dollar to fall, appreciating the dollar. O supply of euros to increase, depreciating the euro. O demand for euros to decrease, depreciating the euro. 48. Suppose that the United...
Interest rates in the United States are 1% and in Canada they are currently at 2%. The USD/CAD spot rate is 0.9881. You are offered a 12-month forward rate of 1.01. • Calculate the theoretical forward rate implied by Interest Rate Parity. • Is the forward contract relatively under-valued or overvalued? • What is the percentage return from engaging in Covered Interest Arbitrage? (Calculate as a percentage of your initial borrowing, accurate to 4 decimal places)
(CO E) Compare the approaches that have been taken in Europe and the United States in defining cybercrime.
Unemployment rates have been higher in many European countries in recent decades than in the United States. At the same time, the unemployment rates differ among different countries in the Euro Area. Explain what are the main reasons for this difference in unemployment rates between Europe and the United States, and among European countries?