Please do Part A, B, C, D separately.
Homework Answers
a) The real rate is another name for the terms of trade, which is expressed as Px/Pm, where Px is the price of export and Pm is the price of import.
c) real interest rate ≈ nominal interest rate − inflation rate.
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Please do Part A, B, C, D
separately.
Suppose that the following conditions all hold: uncovered...
Suppose you are a currency speculator trying to forecast what will happen to the value of the dol...
Suppose you are a currency speculator trying to forecast what will happen to the value of the dollar over the next year. Suppose all of our usual theories hold (uncovered, covered and real interest rate parities, absolute and relative purchasing power parities, as well as the Fisher effect for nominal interest rates). For each of the separate cases below, use the information in that case to compute the expected depreciation of the dollar , or state if there is not...
can you please do all work in steps on a paper if possible Exercises: Parity conditions...
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you please do all work in steps on a paper if possible
Exercises: Parity conditions in real markets and financial markets EXERCISE 4 (Purchasing Power Parity) We live in a four-country world where people only grow and eat coconuts. We have the following data: Brazil a Mexico Argentina United States Price of one BRL 2,000 MXN 5 ARS 1.5 USD 1.4 coconut Exchange rate MXN/BRL 400 ARS/BRL 1,200 USD/BRL 1,400 a) Does Purchasing Power Parity hold for the BRL...
Assume that uncovered interest rate parity holds between the Japanese yen and the U.S. dollar. If...
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.
Do you agree with the following statements? Please provide reasons to support your answer. “Covered interest...
Do you agree with the following statements? Please provide reasons to support your answer. “Covered interest parity is forced by arbitrage, which is not the case for uncovered interest rate parity. If the forward rate is equal to the expected future spot rate, we say that the forward rate is an unbiased predictor of the future spot rate: F = E(S1). In this special case, given that covered interest parity holds, uncovered interest parity would also hold (and vice versa)....
Suppose that the uncovered interest parity condition holds and the expected exchange rate between the euro...
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
Given the information above about the Dutch investor, and if Uncovered Interest Rate Parity holds, what...
Given the information above about the Dutch investor, and if Uncovered Interest Rate Parity holds, what is the expected change of the euro against the pound over one year? Consider a Dutch investor with 1,000 euros to place in a bank deposit in eitherthe Netherlands or Great Bntain The one-year interest rate on bank deposits is 2% in Britain and 4.04% in the Netherlands. The one-year forward euro-pound exchange rate is 1.575 euros per pound, and the spot rate is...
Can someone please answer this! Question 2) a. (10 points) Suppose that the South African interest...
Can someone please answer this!
Question 2) a. (10 points) Suppose that the South African interest rate is 4% and the U.S. interest rate is 6%. If the expected future spot exchange rate one year from now is FRand's = 6.05 Rand per dollar and uncovered interest rate parity holds, what must the current spot exchange rate be in order to clear the foreign exchange market? b. (10 points) Suppose that the expected future spot rate is 6.25 rather than...
Question 3 (a) State theuncovered interest rate parity condition. (b) Consider an open economy with a...
Question 3 (a) State theuncovered interest rate parity condition. (b) Consider an open economy with a domestic interest rate of i, 3%, a nominal exchange rate between the domestic and foreign economy of E, =2, and where the foreign interest rate is i2%. In this case according to the "interest rate parity" what is the markets expectation of the future exchange rate E? (c) Consider an open economy with a domestic interest rate of i, 5 %, a nominal exchange...
9) Suppose today that US nominal interest rate = 1% and German nominal interest rate =...
9) Suppose today that US nominal interest rate = 1% and German nominal interest rate = 6% and the current nominal exchange rate is E = €0.50/$. a. Use the uncovered interest party equation to compute the expected rate of appreciation of the US$ relative to the Euro. (Approximate form of the equation is fine.) b. Given your answer to a, what the expected future exchange rate? c. If you expect the US$ to depreciate relative to the Euro which...
can
you please do all work in steps on a paper if possible
Exercises: Parity conditions in real markets and financial markets EXERCISE 4 (Purchasing Power Parity) We live in a four-country world where people only grow and eat coconuts. We have the following data: Brazil a Mexico Argentina United States Price of one BRL 2,000 MXN 5 ARS 1.5 USD 1.4 coconut Exchange rate MXN/BRL 400 ARS/BRL 1,200 USD/BRL 1,400 a) Does Purchasing Power Parity hold for the BRL...
Given the information above about the Dutch investor, and if Uncovered Interest Rate Parity holds, what is the expected change of the euro against the pound over one year? Consider a Dutch investor with 1,000 euros to place in a bank deposit in eitherthe Netherlands or Great Bntain The one-year interest rate on bank deposits is 2% in Britain and 4.04% in the Netherlands. The one-year forward euro-pound exchange rate is 1.575 euros per pound, and the spot rate is...
Can someone please answer this!
Question 2) a. (10 points) Suppose that the South African interest rate is 4% and the U.S. interest rate is 6%. If the expected future spot exchange rate one year from now is FRand's = 6.05 Rand per dollar and uncovered interest rate parity holds, what must the current spot exchange rate be in order to clear the foreign exchange market? b. (10 points) Suppose that the expected future spot rate is 6.25 rather than...
Question 3 (a) State theuncovered interest rate parity condition. (b) Consider an open economy with a domestic interest rate of i, 3%, a nominal exchange rate between the domestic and foreign economy of E, =2, and where the foreign interest rate is i2%. In this case according to the "interest rate parity" what is the markets expectation of the future exchange rate E? (c) Consider an open economy with a domestic interest rate of i, 5 %, a nominal exchange...
9) Suppose today that US nominal interest rate = 1% and German nominal interest rate = 6% and the current nominal exchange rate is E = €0.50/$. a. Use the uncovered interest party equation to compute the expected rate of appreciation of the US$ relative to the Euro. (Approximate form of the equation is fine.) b. Given your answer to a, what the expected future exchange rate? c. If you expect the US$ to depreciate relative to the Euro which...
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