Homework Answers
11 percent.
This is a situation of interest parity condition. It is defined as a condition in which the rate of returns on assets which are comparable for two different countries are equal.
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Question 29 (0.8 points) If the interest rate on euro-denominated assets is 13 percent and it...
Question 20 (0.8 points) According to the interest parity condition, if the domestic interest rate is...
Question 20 (0.8 points) According to the interest parity condition, if the domestic interest rate is 12 percent and the foreign interest rate is 10 percent, then the expected appreciation rate of the foreign currency against the domestic currency must be percent (put a negative sign if it is expected to depreciate). Question 21 (0.5 points) If the exchange rate at time t is €1/$. You invest $1 in an euro asset at t, which has an interest of 8%....
Question 22 (0.8 points) With a 10 percent interest rate on dollar deposits, a 7 percent...
Question 22 (0.8 points) With a 10 percent interest rate on dollar deposits, a 7 percent interest rate on euro deposits, and an expected dollar appreciation of 7 percent over the coming year, the expected return on dollar deposits in terms of the dollar is %
3. a. Assume that the interest rate on Euro denominated assets is 5% and the interest...
3. a. Assume that the interest rate on Euro denominated assets is 5% and the interest rate on comparable dollar denominated assets is 10%. The spot exchange rate is $1/1E. If you expect the exchange rate changes to $1.05/1E, where would you want to keep your money? Calculate and show! b. The current interest rates on dollar and pound denominated deposits are 2% in the US and 3% in the UK. The current spot exchange rate is $2/1Pound. If the...
Question 23 (0.8 points) According to the interest parity condition, if the U.S. interest rate is...
Question 23 (0.8 points) According to the interest parity condition, if the U.S. interest rate is 2 percent and the Japanese interest rate is 4%, and the current exchange rate is 100 yens per dollar. Then the market expects the future exchange rate to be yens per dollar Question 24 (0.8 points) If the exchange rate at time tis E = €1/$. You invest $1 in an euro asset at t, which has an interest of 8%. If Et+1 =...
Please show work and choose A, B, C, or D. The 12-month interest rate on dollar-denominated...
Please show work and choose A, B, C, or D.
The 12-month interest rate on dollar-denominated assets (like bank deposits) is 2.00%. The 12- month interest rate on euro-denominated assets is 4.50%. The current spot exchange rate is $1.15 per euro. The current forward exchange rate is $1.05 per euro. You have an initial dollar fund of $100,000. Suppose that you decide to invest your dollar fund in euro-denominated assets while also using the forward exchange market to hedge against...
Suppose the spot exchange rate be $1.45 per euro, the interest rate on one-year euro-denominated German...
Suppose the spot exchange rate be $1.45 per euro, the interest rate on one-year euro-denominated German government bond is 2%, and the expected future spot rate be $1.50 per euro. At the same time, the interest rate on dollar-denominated US government bond with the same maturity is 3%. a. Calculate the expected dollar return on the German government bond. b. Does your answer in Part (a) imply free capital mobility between the US and Germany? Explain your reasoning. c. Suppose...
Bank USA recently purchased $10.8 million worth of euro-denominated one-year CDs that pay 11 percent interest...
Bank USA recently purchased $10.8 million worth of euro-denominated one-year CDs that pay 11 percent interest annually. The current spot rate of U.S. dollars for euros is $1.104/€1. a. Is Bank USA exposed to an appreciation or depreciation of the dollar relative to the euro? b. What will be the return on the one-year CD if the dollar appreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is...
You are a US investor. The US interest rate is 5% while the Euro interest rate...
You are a US investor. The US interest rate is 5% while the Euro interest rate is 4.2%. With a current spot exchange rate E$/€=1.25 and an expected exchange rate of E e $/€=1.08. a. Is dollar expected to appreciate or depreciate (against euro)? Explain. b. Does UIP hold true here? Explain. c. Which type of deposit is more attractive? Dollar deposit, euro deposit, or no difference? Explain. please show all work
Bank USA recently purchased $11.8 million worth of euro-denominated one-year CDs that pay 12 percent interest...
Bank USA recently purchased $11.8 million worth of euro-denominated one-year CDs that pay 12 percent interest annually. The current spot rate of U.S. dollars for euros is $1.104/1. a. Is Bank USA exposed to an appreciation or depreciation of the dollar relative to the euro? b. What will be the return on the one-year CD if the dollar appreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is...
a foreign investor placing money in dollar denominated assets desires a 4% real rate of return....
a foreign investor placing money in dollar denominated assets desires a 4% real rate of return. Global inflation is running about 3%, and the dollar is expected to decline against his or her home currency by 1.5% over the investment period. What is his or her minimum required rate of return?
Question 20 (0.8 points) According to the interest parity condition, if the domestic interest rate is 12 percent and the foreign interest rate is 10 percent, then the expected appreciation rate of the foreign currency against the domestic currency must be percent (put a negative sign if it is expected to depreciate). Question 21 (0.5 points) If the exchange rate at time t is €1/$. You invest $1 in an euro asset at t, which has an interest of 8%....
Question 22 (0.8 points) With a 10 percent interest rate on dollar deposits, a 7 percent interest rate on euro deposits, and an expected dollar appreciation of 7 percent over the coming year, the expected return on dollar deposits in terms of the dollar is %
Question 23 (0.8 points) According to the interest parity condition, if the U.S. interest rate is 2 percent and the Japanese interest rate is 4%, and the current exchange rate is 100 yens per dollar. Then the market expects the future exchange rate to be yens per dollar Question 24 (0.8 points) If the exchange rate at time tis E = €1/$. You invest $1 in an euro asset at t, which has an interest of 8%. If Et+1 =...
Please show work and choose A, B, C, or D.
The 12-month interest rate on dollar-denominated assets (like bank deposits) is 2.00%. The 12- month interest rate on euro-denominated assets is 4.50%. The current spot exchange rate is $1.15 per euro. The current forward exchange rate is $1.05 per euro. You have an initial dollar fund of $100,000. Suppose that you decide to invest your dollar fund in euro-denominated assets while also using the forward exchange market to hedge against...
Suppose the spot exchange rate be $1.45 per euro, the interest rate on one-year euro-denominated German government bond is 2%, and the expected future spot rate be $1.50 per euro. At the same time, the interest rate on dollar-denominated US government bond with the same maturity is 3%. a. Calculate the expected dollar return on the German government bond. b. Does your answer in Part (a) imply free capital mobility between the US and Germany? Explain your reasoning. c. Suppose...
Bank USA recently purchased $10.8 million worth of euro-denominated one-year CDs that pay 11 percent interest annually. The current spot rate of U.S. dollars for euros is $1.104/€1. a. Is Bank USA exposed to an appreciation or depreciation of the dollar relative to the euro? b. What will be the return on the one-year CD if the dollar appreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is...
Bank USA recently purchased $11.8 million worth of euro-denominated one-year CDs that pay 12 percent interest annually. The current spot rate of U.S. dollars for euros is $1.104/1. a. Is Bank USA exposed to an appreciation or depreciation of the dollar relative to the euro? b. What will be the return on the one-year CD if the dollar appreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is...
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