1. If inflation in U.S. is projected at 3% annually for the next year and at 8% annually in Mexico for the same period, and the spot rate is currently at 10.20 pesos/$, then the purchasing power parity implies that the spot rate one year from now is (rounded):
a.Pesos 10.4512/$
b.Pesos 10.695/$
c.Pesos 9.9548/$
d.Pesos 9.7278/$
2.
Special Drawing Rights (SDRs) are
a. |
special rights of New Yorkers to paint graffiti on New York subways |
|
b. |
rights of World Bank members to get loans from The New York Federal Reserve Bank |
|
c. |
criteria that IMF members have to follow before they can become IMF members |
|
d. |
voting rights of each country in the IMF |
|
e. |
none of the other four |
3.
I am a US wine exporter who is exporting wine to Portugal worth € 100,000 and the amount is due in one year. I want to hedge my euro receivables using a money market hedge and obtain the following quotes from my banker.
Bid Ask Spot rate is $1.3000 – $ 1.3100 per €.
The Portugese interest rates are 4 % - 4.6 % annually and the US interest rates are 3.1 – 3.6 % annually.
Using a money market hedge and bid-ask spreads, what are my receivables in dollars in one year (rounded)?
a. |
$129,599 |
|
b. |
$129,124 |
|
c. |
$128,136 |
|
d. |
$124,283 |
Q1. Expected future spot rate = exchange rate * (1+foriegn interest rate)/(1+domestic interest rate)
According to fisher equation, (1+interest rate)= (1+real interest rate)*(1+inflation rate)
Assuming same real interst rate to be same,
Expected future spot rate = 10.20*(1+0.03)/(1+0.08) = 9.7278 peso/$
1. If inflation in U.S. is projected at 3% annually for the next year and at...
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