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2. Suppose that the interest rate is i = 12% in New York and i* =8%...
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 $.01 per yen, what is the expected exchange rate one-year from today? Suppose that expected inflation in the U.S. increased. What would happen to the current (spot) exchange, i.e. will it increase or decrease? Explain your reasoning.
Suppose that the interest rate on dollar accounts is equal to 2% (i$ = 0.02), the...
Suppose that the interest rate on dollar accounts is equal to 2% (i$ = 0.02), the interest rate on Polish zloty accounts is equal to 4.5% (izł = 0.045), and the expected exchange rate between the dollar and the zloty one year from now is ee = 4 zł/$. Assume that the (uncovered) interest parity holds. Find the spot exchange rate, e. (Answer in zł/$ and round to the nearest tenth.)
(2). If the interest rate on dollar accounts is equal to 2% (i$ = 0.02), the...
(2). If the interest rate on dollar accounts is equal to 2% (i$ = 0.02), the interest rate on Polish zloty accounts is equal to 4.5% (izł = 0.045), and the expected exchange rate between the dollar and the zloty one year from now is ee = 4 zł/$. Assume that the (uncovered) interest parity holds. How do I find the spot exchange rate, e. (Answer in zł/$ and round to the nearest tenth.)
Suppose that the three-month interest rate in Australia is 2 percent and it equals 4 percent...
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].
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...
The peso is the currency of Argentina. Suppose that the peso/$ forward exchange rate, F, is...
The peso is the currency of Argentina. Suppose that the peso/$ forward exchange rate, F, is exactly equal to traders' expectations for the value of the peso/$ spot rate, E, in six months' time. a. If F = 1.15 and E= 1.10, what is the forward discount on pesos? b. Assuming that interest rate parity (IRP) holds, what would you expect to be true of the interest differential between six-month dollar deposits and six-month peso deposits, that is, R$ -...
9. A problem using the general monetary model Suppose we use the general model, in which...
9. A problem using the general monetary model Suppose we use the general model, in which real money demand is L(i)rand we assume that both relative PPP (RPPP) and uncovered interest parity (UIP) hold. Consider two countries, Australia (A) and New Zealand (NZ). Imagine in a particular year that Australia had slower real income growth (2%) and NZ had higher real income growth (5%). Suppose the central bank of A permitted the nominal money supply to grow by 4% per...
QUESTION 2 (6 points, 2 points per section) If you need additional help with this question,...
QUESTION 2 (6 points, 2 points per section) If you need additional help with this question, read Part I of Lecture Note #2 on Arbitrage. You must own 100 shares of NoteBook three months from today. NoteBook will not pay any dividends over the next 3 months. You have the money to buy the shares today, if you wish. There is a futures contract calling for delivery of 100 shares of NoteBook three months from today. The current futures price...
1. (No-Arbitrage Condition and Interest Parity Condition) Using the concept of no-arbitrage, we can compute a condition...
1. (No-Arbitrage Condition and Interest Parity Condition) Using the concept of no-arbitrage, we can compute a condition that a foreign exchange rate has to satisfy in the short run. Exchange rate is a ratio of the values of two currencies such as dollar and euro. Denote by E the exchange rate of euro in terms of dollar, that is, a dollar value of 1 euro. For example, if E = 1.1 ($/e), then $220 = e ( 220 E )...
PROBLEM NO 2. An Open Economy in the Short Run and The Medium Run (25 Points)...
PROBLEM NO 2. An Open Economy in the Short Run and The Medium Run (25 Points) a. Indonesia's equilibrium condition of goods and services market can be expressed by the following equation: Y = CAY - T) + (Y, r) +G-IMY, )) { + X(Y*, £) where: Y=domestic output; Y*= foreign output; C= consumption: T=tax; l=investment, r=real interest rate; G=government spending, € = Real Exchange Rate. If it is assumed that the Marshall-Lerner condition holds. Explain in words the effects...
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...
9. A problem using the general monetary model Suppose we use the general model, in which real money demand is L(i)rand we assume that both relative PPP (RPPP) and uncovered interest parity (UIP) hold. Consider two countries, Australia (A) and New Zealand (NZ). Imagine in a particular year that Australia had slower real income growth (2%) and NZ had higher real income growth (5%). Suppose the central bank of A permitted the nominal money supply to grow by 4% per...
QUESTION 2 (6 points, 2 points per section) If you need additional help with this question, read Part I of Lecture Note #2 on Arbitrage. You must own 100 shares of NoteBook three months from today. NoteBook will not pay any dividends over the next 3 months. You have the money to buy the shares today, if you wish. There is a futures contract calling for delivery of 100 shares of NoteBook three months from today. The current futures price...
PROBLEM NO 2. An Open Economy in the Short Run and The Medium Run (25 Points) a. Indonesia's equilibrium condition of goods and services market can be expressed by the following equation: Y = CAY - T) + (Y, r) +G-IMY, )) { + X(Y*, £) where: Y=domestic output; Y*= foreign output; C= consumption: T=tax; l=investment, r=real interest rate; G=government spending, € = Real Exchange Rate. If it is assumed that the Marshall-Lerner condition holds. Explain in words the effects...
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