5. Suppose the current spot exchange rate is $1.17 to €1. The dollar is expected to...
5. Suppose the current spot exchange rate is $1.17 to €1. The dollar is expected to appreciate to $1.11 to €1 during the next year. (Assume inflation and risk etc. are the same between the Eurozone and the U.S.)
(a) What is the expected currency appreciation gain for the dollar? (Give this as a percentage and round to the nearest 0.1%.)
(b) Suppose the interest rate on 1-year corporate bonds in the U.S. is 4%. What is the expected total return for Eurozone investors who buy dollar bonds now? (Give this as a percentage, round to the nearest 0.1%, and use our total return approximation.)
Homework Answers
Add Answer to:
5. Suppose the current spot exchange rate is $1.17 to €1. The
dollar is expected to...
5. Suppose the current spot exchange rate is $1.17 to €1. The dollar is expected to...
5. Suppose the current spot exchange rate is $1.17 to €1. The dollar is expected to appreciate to $1.11 to €1 during the next year. (Assume inflation and risk etc. are the same between the Eurozone and the U.S.) (a) What is the expected currency appreciation gain for the dollar? (Give this as a percentage and round to the nearest 0.1%.) (b) Suppose the interest rate on 1-year corporate bonds in the U.S. is 4%. What is the expected total...
Suppose the spot exchange rate for the Canadian dollar is Can$1.12 and the six-month forward rate...
Suppose the spot exchange rate for the Canadian dollar is Can$1.12 and the six-month forward rate is Can$1.17. (Enter your answers as directed, but do not round intermediate calculations.) a. Which is worth more, a U.S. dollar or a Canadian dollar? b. Assuming absolute PPP holds, what is the cost in the United States of an Elkhead beer if the price in Canada is Can$2.49? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)...
3. The following conditions exist in the foreign exchange market: Current spot rate: $1.80/pound Annualized interest...
3. The following conditions exist in the foreign exchange market: Current spot rate: $1.80/pound Annualized interest rate on 90-day dollar-denominated bonds: 896(296 for 90 days) Annualized interest rate on 90-day pound-denominated bonds: 12% (3% for 90 days) All financial investors expect the spot exchange rate to be $1.77/pound in 90 days. a. If a U.S. investor bases decisions solely on the expected rate of return, should that investor buy pound-denominated bonds or dollar-denominated bonds? Briefly explain. If a United Kingdom...
Suppose the spot exchange rate for the Canadian dollar is Can$1.07 and the six-month forward rate...
Suppose the spot exchange rate for the Canadian dollar is Can$1.07 and the six-month forward rate is Can$1.09. a. Which is worth more, a U.S. dollar or a Canadian dollar? O U.S. dollar Canadian dollar b. Assuming absolute PPP holds, what is the cost in the United States of an Elkhead beer if the price in Canada is Can$2.60? (Round your answer to 3 decimal places, e.g., 32.161.) Cost in U.S. dollars c. Is the U.S. dollar selling at a...
PPP - Purchasing Power Parity Suppose that the current Swiss franc to U.S. dollar spot exchange...
PPP - Purchasing Power Parity Suppose that the current Swiss franc to U.S. dollar spot exchange rate is $:SFr = 1.60 (i.e., 1.60 SFr per U.S. dollar or 1.60 SFr/$). The expected inflation over the coming year is 2% in Switzerland and 5% in the US. According to the purchasing power parity, what is the expected value of the Swiss franc to U.S. dollar spot exchange rate a year from now?
Current spot rate of Australian dollar = $.67 Forecasted spot rate of Australian dollar 1 year...
Current spot rate of Australian dollar = $.67 Forecasted spot rate of Australian dollar 1 year from now = $.68 1-year forward rate of Australian dollar = $.93 Annual interest rate for Australian dollar deposit = 4% Annual interest rate in the U.S. = 2% What is your percentage return from covered interest arbitrage with $550,000 for one year?
5A. Suppose the current spot rate for the UK pound is $1.9586/£. The annual inflation rates...
5A. Suppose the current spot rate for the UK pound is $1.9586/£. The annual inflation rates in the US and in the UK are expected to be 2% and 5%, respectively. This means that: a. The U.S. dollar should appreciate over the next year. b. The U.S. dollar should depreciate over the next year. c. Both a and b are true. d. Neither a nor b are true. 5B. Using the information provided in question 5A, what is your best...
The following exchange rates exist on a particular day. Spot exchange rate: U.S. $1.400/euro Forward exchange...
The following exchange rates exist on a particular day. Spot exchange rate: U.S. $1.400/euro Forward exchange rate (90 days): U.S. $1.427/euro The following (annualized) interest rates on 90-day government bonds also exist on this day: Euro-denominated bonds: 8% U.S. dollar–denominated bonds: 16% Financial investors in all countries have the expectation that the spot exchange rate in 90 days will be 0.7100 euro/U.S. dollar. Are investors expecting the euro will appreciate or depreciate during the next 90 days? Consider the comparison...
Suppose that the current exchange rate is 1$ = 0.80€, and the expected exchange rate is...
Suppose that the current exchange rate is 1$ = 0.80€, and the expected exchange rate is 1.30$ = 1€, If the U.S dollar gives a 5% returns and the euro gives 2% returns. Do you prefer to invest in local currency ($) or euros?
2A. Suppose that the return on U.S. dollar deposits is greater than the dollar rate of...
2A. Suppose that the return on U.S. dollar deposits is greater than the dollar rate of return on euro deposits (which you calculated). Which of the following statements is most likely to be true? a. Investors will get out of dollar deposits, and move into euro deposits. b. Investors will get out of euro deposits, and move into dollar deposits. c. The U.S. dollar will appreciate in value. d. The U.S. dollar will depreciate in value. e. Both a and...
Suppose the spot exchange rate for the Canadian dollar is Can$1.12 and the six-month forward rate is Can$1.17. (Enter your answers as directed, but do not round intermediate calculations.) a. Which is worth more, a U.S. dollar or a Canadian dollar? b. Assuming absolute PPP holds, what is the cost in the United States of an Elkhead beer if the price in Canada is Can$2.49? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)...
3. The following conditions exist in the foreign exchange market: Current spot rate: $1.80/pound Annualized interest rate on 90-day dollar-denominated bonds: 896(296 for 90 days) Annualized interest rate on 90-day pound-denominated bonds: 12% (3% for 90 days) All financial investors expect the spot exchange rate to be $1.77/pound in 90 days. a. If a U.S. investor bases decisions solely on the expected rate of return, should that investor buy pound-denominated bonds or dollar-denominated bonds? Briefly explain. If a United Kingdom...
Suppose the spot exchange rate for the Canadian dollar is Can$1.07 and the six-month forward rate is Can$1.09. a. Which is worth more, a U.S. dollar or a Canadian dollar? O U.S. dollar Canadian dollar b. Assuming absolute PPP holds, what is the cost in the United States of an Elkhead beer if the price in Canada is Can$2.60? (Round your answer to 3 decimal places, e.g., 32.161.) Cost in U.S. dollars c. Is the U.S. dollar selling at a...
5A. Suppose the current spot rate for the UK pound is $1.9586/£. The annual inflation rates in the US and in the UK are expected to be 2% and 5%, respectively. This means that: a. The U.S. dollar should appreciate over the next year. b. The U.S. dollar should depreciate over the next year. c. Both a and b are true. d. Neither a nor b are true. 5B. Using the information provided in question 5A, what is your best...
2A. Suppose that the return on U.S. dollar deposits is greater than the dollar rate of return on euro deposits (which you calculated). Which of the following statements is most likely to be true? a. Investors will get out of dollar deposits, and move into euro deposits. b. Investors will get out of euro deposits, and move into dollar deposits. c. The U.S. dollar will appreciate in value. d. The U.S. dollar will depreciate in value. e. Both a and...
Most questions answered within 3 hours.
-
Try to get the code down to less than 40 lines. (PYTHON)
import random
fave_number =...
asked 1 minute from now -
c. Node Admittance matrix and its use in different calculations
of power transmission system. Display the...
asked 1 minute from now -
A) Suppose U=X∙Y3. Find X* and Y*.
B) Suppose U=X3∙Y. Find X* and Y*.
C) Suppose...
asked 42 seconds ago -
2.
Regression analysis was applied between sales (in $1,000) and
advertising (in $100), and the following...
asked 6 minutes ago -
I just took a final for chemistry 2. There were alot of
questions on cell potential....
asked 38 minutes ago -
A spherical weather balloon is filled with hydrogen until its
radius is 2.30 m. Its total...
asked 3 minutes ago -
Calculate the entropy change for the hypothetical process in
which 0.5 g of ice at 0°C...
asked 25 minutes ago -
When an airplane is flying 200 mph at 5000-ft altitude in a
standard atmosphere, the air...
asked 13 minutes ago -
Consider the economy of Freeland, whose overall actual price
index and actual output are P and...
asked 26 minutes ago -
Your car is worth considerably less money than you owe.
This is an example of the...
asked 25 minutes ago -
Which Asian police agency discussed in class does not have a
citizenship requirement for police officers?...
asked 18 minutes ago -
A test tube with a suspension of cells that was diluted to 1:100
(DF 1/100). You...
asked 13 minutes ago