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 $/€=1.08.
a. Is dollar expected to appreciate or depreciate (against euro)? Explain.
b. Does UIP hold true here? Explain.
c. Which type of deposit is more attractive? Dollar deposit, euro deposit, or no difference? Explain.
please show all work
Homework Answers
Add Answer to:
You are a US investor. The US interest rate is 5% while the Euro
interest rate...
5. Suppose the interest rate in the US is 2% and the interest rate in Russia...
5. Suppose the interest rate in the US is 2% and the interest rate in Russia is 15%. In a year investors expect the exchange rate to be at Ep = 0.016. Suppose the UIP holds. What is the exchange rate today? 6. Exchange rates and shocks. Using the UIP expression you obtained answer the following questions: (a) Suppose the Central Bank of Russia announces its intentions to raise the interest rate. What will happen to Esp? Will the ruble...
In the table below, exchange rate is defined as US dollars per Euro, E$/€. Given the...
In the table below, exchange rate is defined as US dollars per Euro, E$/€. Given the information below, using UIP (in approximate form), fill in the blanks marked with letters. Round your answers to 3 decimals. Interest Rate on Dollar Deposit (annual) Interest Rate on Euro Deposit (annual) Spot Exchange Rate, E$/€ (today) Expected Future Exchange Rate, Ee$/€ (in one year) Expected Rate of Change in Exchange Rate (Ee$/€-E$/€)/E$/€ Expected Dollar Return on Euro Deposit (annual) Investors Prefer 0.025 (2.5%)...
In the table below, exchange rate is defined as US dollars per Euro, E$/€. Given the...
In the table below, exchange rate is defined as US dollars per Euro, E$/€. Given the information below, using UIP (in approximate form), fill in the blanks marked with letters. Round your answers to 3 decimals. Interest Rate on Dollar Deposit (annual) Interest Rate on Euro Deposit (annual) Spot Exchange Rate, E$/€ (today) Expected Future Exchange Rate, Ee$/€ (in one year) Expected Rate of Change in Exchange Rate (Ee$/€-E$/€)/E$/€ Expected Dollar Return on Euro Deposit (annual) Investors Prefer 0.025 (2.5%)...
2. Suppose the average interest rate on euro bonds is 4%, and the average interest rate...
2. Suppose the average interest rate on euro bonds is 4%, and the average interest rate on U.S. dollar bonds is 6%. Which should the investor choose? (a) neither, because bonds have high default rates. (b) both, an investor will choose some euro bonds and some U.S. bonds to diversify. (c) the euro bond, because their economies are usually more stable. (d) It is not possible to answer without information on exchange rates. 3. If the U.S. interest rate is...
If the interest rate in the U.S. is expected to be 5 percent for the next...
If the interest rate in the U.S. is expected to be 5 percent for the next year. The interest rate in the U.K. is expected to be 8 percent for the next year. Uncovered IRP suggests that the: Multiple Choice O U.S. dollar should depreciate against the pound by about 3 percent. O British pound should depreciate against the dollar and the dollar should appreciate against the pound, both by about 3 percent O British pound is should appreciate against...
Question 32 1 pts Assume the US government security with 1 year maturity (nominal interest rate)...
Question 32 1 pts Assume the US government security with 1 year maturity (nominal interest rate) is 2% and Japanese government security with 1 year maturity is 1%. Regardless of the current exchange rate (US$ as a base), if you apply the International Fisher Effect to predict the exchange rate, Yen will against US$. O depreciate O appreciate ourses/6407/quizzes/214422/take D Question 31 1 pts Assume the BigMac is sold at US$5 in US and 3 Euro in Germany. Let's assume...
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...
1. Suppose the dollar-euro exchange rate, Esle, are as follows: in New York, $1.2 per euro;...
1. Suppose the dollar-euro exchange rate, Esle, are as follows: in New York, $1.2 per euro; and in Paris, $1.3 per euro. (10 pts) a. Describe how investors use arbitrage to take advantage of the difference in exchange rates. (5 pts) b. Will this make euros appreciate or depreciate (against dollars) in Paris? Will this make euros appreciate or depreciate (against dollars) in New York? Under what conditions will the equilibrium be restored? Explain. (5 pts)
10. If the annu theory of PPP predicts that the euro will rate approach predicts that 0.5%, respe...
real exchange rate
10. If the annu theory of PPP predicts that the euro will rate approach predicts that 0.5%, respectively, then the al percent changes of Ps. PEU and q are 5%, 1%, and in nominal terms, while the real exchange the euro will_ nominal terms. A) appreciate 4% against the dollar, appreciate 1.5% against the dollar B) depreciate 3% against the dollar; appreciate 0.5% against the dollar C) appreciate 4% against the dollar; 3.5% against the dollar D)...
The spot rate of euro against US$ is $1.4250/€. The rate of inflation in the U.S....
The spot rate of euro against US$ is $1.4250/€. The rate of inflation in the U.S. and Euro area are expected to be 3% and 2.5% respectively. Based on the theory of Relative PPP, the expected spot exchange rate of euro against the US$ for next year is ____________.
5. Suppose the interest rate in the US is 2% and the interest rate in Russia is 15%. In a year investors expect the exchange rate to be at Ep = 0.016. Suppose the UIP holds. What is the exchange rate today? 6. Exchange rates and shocks. Using the UIP expression you obtained answer the following questions: (a) Suppose the Central Bank of Russia announces its intentions to raise the interest rate. What will happen to Esp? Will the ruble...
2. Suppose the average interest rate on euro bonds is 4%, and the average interest rate on U.S. dollar bonds is 6%. Which should the investor choose? (a) neither, because bonds have high default rates. (b) both, an investor will choose some euro bonds and some U.S. bonds to diversify. (c) the euro bond, because their economies are usually more stable. (d) It is not possible to answer without information on exchange rates. 3. If the U.S. interest rate is...
If the interest rate in the U.S. is expected to be 5 percent for the next year. The interest rate in the U.K. is expected to be 8 percent for the next year. Uncovered IRP suggests that the: Multiple Choice O U.S. dollar should depreciate against the pound by about 3 percent. O British pound should depreciate against the dollar and the dollar should appreciate against the pound, both by about 3 percent O British pound is should appreciate against...
Question 32 1 pts Assume the US government security with 1 year maturity (nominal interest rate) is 2% and Japanese government security with 1 year maturity is 1%. Regardless of the current exchange rate (US$ as a base), if you apply the International Fisher Effect to predict the exchange rate, Yen will against US$. O depreciate O appreciate ourses/6407/quizzes/214422/take D Question 31 1 pts Assume the BigMac is sold at US$5 in US and 3 Euro in Germany. Let's assume...
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...
1. Suppose the dollar-euro exchange rate, Esle, are as follows: in New York, $1.2 per euro; and in Paris, $1.3 per euro. (10 pts) a. Describe how investors use arbitrage to take advantage of the difference in exchange rates. (5 pts) b. Will this make euros appreciate or depreciate (against dollars) in Paris? Will this make euros appreciate or depreciate (against dollars) in New York? Under what conditions will the equilibrium be restored? Explain. (5 pts)
real exchange rate
10. If the annu theory of PPP predicts that the euro will rate approach predicts that 0.5%, respectively, then the al percent changes of Ps. PEU and q are 5%, 1%, and in nominal terms, while the real exchange the euro will_ nominal terms. A) appreciate 4% against the dollar, appreciate 1.5% against the dollar B) depreciate 3% against the dollar; appreciate 0.5% against the dollar C) appreciate 4% against the dollar; 3.5% against the dollar D)...
Most questions answered within 3 hours.
-
ORGANIC CHEMISTRY QUESTION 5
PART A--------
Describe a chemical test for the identification of a double...
asked 2 hours ago -
Both Terence and Tong work at a local actuarial consulting firm
in Des Moines.
Terence arrives...
asked 2 hours ago -
QUESTION 11
. THE RESTING POTENTIAL IS CAUSED BY
.
. A.
. the rotation of...
asked 2 hours ago -
Need them in c++
1. Give the code for the
definition of a node for
the linked implementation of
a tree that contains...
asked 2 hours ago -
For sputtering-cleaning and sputter-depositing a metal,
would you use an AC or DC plasma? Explain your...
asked 2 hours ago -
Defend ONE of the following statements:
Prices should reflect the value consumers are willing to
pay....
asked 2 hours ago -
A magnet of mass 0.10 kg is dropped from rest and falls
vertically through a 20.0...
asked 2 hours ago -
A friend approaches you about a nutritional product and ask you
if it is worth it....
asked 2 hours ago -
What is bacterial transformation? What are the differences and
similarities between transforming a bacterial cell with...
asked 3 hours ago -
A wire loop 20 cm high is dipped in soap solution and then held
vertically to...
asked 3 hours ago -
OK, now you're all mixed up and you slam into the wall with your
car (total...
asked 3 hours ago -
1. A.Explain why the spread (variance) of a sampling
distribution for estimating a mean would be...
asked 3 hours ago