5. (10 pts) This question is about covered interest parity. Suppose that a 30 day deposit...
3. Covered International Investment What is covered interest parity? Example: Suppose that Britain and U.S. interest rates are SUK=0.04 and ius =0.03 respectively for 90 days, and that the spot exchange rates are $2.00/£, what is the forward exchange rate if the covered interest parity exist?
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?
Current spot rate is $1.20/€ French interest rate on a 30-day bond is 1.5% You expect the spot exchange rate to be $1.30/€ in 30 days. What is the expected uncovered dollar return on the French asset?
Suppose that the three-month interest rate in Australia is 2 percent and it equals 4 percent in the United States. Suppose further that the three-month forward rate ($/$) on the Australian dollar (A$) is $1.01 and the spot rate $/$ = $1.00/$. Does covered interest rate parity hold in this case? If not, what would arbitragers do? [USA: home country, Australia: foreign country].
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...
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.
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...
Please do Part A, B, C, D separately. Suppose that the following conditions all hold: uncovered and covered interest rate parity, real interest rate parity, relative and absolute purchasing power parity. And suppose you have the following information: - The current nominal interest rate for a 1 year deposit in a Brazilian bank is 20%. - Inflation is expected to be 10 percentage points higher in Brazil than Argentina over the next year. - The forward exchange rate between Brazil...
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...
Question 171 pts Assume the interest parity condition holds and that individuals expect the dollar to appreciate by 5% during the coming year. Given this information, we know that Group of answer choices the interest rate differential between the two countries is less than 5%. i < i*. i = i*. individuals will only hold foreign bonds. Question 17 1 pts Assume the interest parity condition holds and that individuals expect the dollar to appreciate by 5% during the coming...