If gold is $1000 an ounce in the US and 800 pounds in the UK what...
According to the Purchasing Power Parity, if a Big Mac was representative of a basket of goods in the US and the UK, and a Big Mac cost $5 and £4, then what should the spot rate be in terms of US dollars (i.e. $/£) Multiple Choice $1/£ $1.20/£ $1.30/£ $1.35/£ $1.25/£
Question 1: Imagine that £ is pegged to gold at the price of £800/ounce. And the S is pegged to gold at $1,200 / ounce. The implied exchange rate is how much? (12 points) If the current exchange is $1.80 per pound. How can you take advantage of this situation? Hint: Assume that you have $1,200 available.
5 pts Question 20 Due to the integrated nature of their capital markets, investors in both the U.S. and UK, require the same real interest rate, 2.5%, on their lending. There is a consensus in capital markets that the annual inflation rate is likely to be 3.5% in the US. and 1.5% in the U.K. for the next three years. The spot exchange rate is currently $1.50/E. Using the Purchasing Power Parity, what is your expected future spot dollar-pound exchange...
Assume that the (nominal) exchange rates b/w US and UK one year ago was $1.25/£ and currently the rate is $1.20/£ . Also, inflation rates during the year in US and UK were respectively 2% and 3%. Answer the following questions a. What was the percentage change in the (nominal) value of the pound? b. What the (nominal) exchange rate should be today if the RPPP (relative purchasing parity) holds? c. What was the percentage change in the real exchange...
5. (20). Assume that the (nominal) exchange rates b/w US and UK one year ago was $1.25/£ and currently the rate is $1.20/£ . Also, inflation rates during the year in US and UK were respectively 2% and 3%. Answer the following questions a. What was the percentage change in the (nominal) value of the pound? b. What the (nominal) exchange rate should be today if the RPPP (relative purchasing parity) holds? c. What was the percentage change in the...
A manager of a corporation based in U.S. is expecting to receive 1,000,000 UK pounds in 1 year from corporation’s UK client.At that time the manager is planning to exchange UK pounds for US dollars. Current market rates are as follows: U.S. 1-yearinterest rate is 6% per annum, UK 1-year interest rate is 4.5% per annum, the spot price of UK pound is $1.55, the forwardprice of UK pound is $1.56. Assume discrete compounding. What is the synthetic forward price...
A manager of a corporation based in U.S. is expecting to receive 1,000,000 UK pounds in 1 year from corporation's UK client. At that time the manager is planning to exchange UK pounds for US dollars. Current market rates are as follows: U.S. 1-year interest rate is 6% per annum. UK 1-year interest rate is 4.5% per annum, the spot price of UK pound is $1.55, the forward price of UK pound is $1.56. Assume discrete compounding. (a) What is...
The US 1-year interest rate is 5% per year and the 1-year UK interest rate is 3%. The spot rate is $1.55/pound and the 1-year forward rate is $1.60/pound. The optimal strategy is for an investor to borrow pounds because the pound is at a forward premium The optimal strategy is for an investor to borrow dollars Interest Rate Parity holds, so there is no advantage to borrowing dollars or pounds The optimal strategy is to borrow pounds because UK...
Assuming the PPP (Purchasing Power Parity) holds, what is the cost in the UK of a Lasko Beer if the price in Croatia is HRK 20? Why might the beer actually sell at a different price in the UK?
Suppose the pound is pegged to gold at 5 pound per ounce, whereas the German Mark is pegged to gold at 15 Mark per ounce. Currently the market exchange rate is 2.5 Mark per pound. 1. What is the implied exchange rate between German Mark and pound? Answer: 1 pound = German Mark (Please write your answer in whole German Mark. Enter just the number without the currency unit). 2. Which of the following strategy will take advantage of this...