a) The current spot rate between the euro and dollar is €1.0963/$. The annual inflation rate in the U.S is expected to be 3.03 percent and the annual inflation rate in euroland is expected to be 2.47 percent. Assuming relative purchasing power parity holds, what will the exchange rate be in two years? b) The spot rate between the U.K. and the U.S. is £.7579/$, while the one-year forward rate is £.7533/$. The risk-free rate in the U.K. is 4.45 percent and risk-free rate in the United States is 2.67 percent. How much in profit can you earn on $7,500 utilizing covered interest arbitrage?

a) The current spot rate between the euro and dollar is €1.0963/$. The annual inflation rate in the U.S is expected to be 3.03 percent and the annual inflation rate in euroland is expected to be 2.47 percent. Assuming relative purchasing power parity holds, what will the exchange rate be in two years? b) The spot rate between the U.K. and the U.S. is £.7579/$, while the one-year forward rate is £.7533/$. The risk-free rate in the U.K. is 4.45 percent and risk-free rate in the United States is 2.67 percent. How much in profit can you earn on $7,500 utilizing covered interest arbitrage?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Suppose that in 2020, the rate of inflation in Denmark was 0.6%, and the rate of inflation in the Euro area was 2.2%. If the Euro depreciated relative to the Danish Krone by 0.75% in the same year, what would be the magnitude of the movement of the real exchange rate (RER) of the Euro relative to the Danish Krone? Euro appreciated in real terms by 2.35 percent. Euro depreciated in real terms by 2.30 percent. Euro appreciated in real terms by 100.83 percent. O d. Euro appreciated in real terms by 0.83 percent. O c.
As of April 30, 2013, the exchange rate between the turkish lira and u.s. dollar is ytl1.80/$. the consensus forecast for the u.s. and turkey inflation rates for the next 1-year period is 1% and 9%, respectively. how would you forecast the exchange rate to be at around April 30, 2014?? use the approximation (shortcut formula)
If the Australian/US dollar exchange rate is 0.72 USD/AUD, US interest rates are 0.25% and Australian interest rates are 0.75% (both for 1 year), what should the 1-year forward USD/AUD exchange rate be?
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Suppose that Boeing Corporation exported a Boeing 747 to Lufthansa and billed €10 million payable in one year. The money market interest rates and foreign exchange rates are given as follows: The U.S. one-year interest rate: 6.10% per annum; The euro zone one-year interest rate: 9.00% per annum; The spot exchange rate: $1.50/€; and The one-year forward exchange rate: $1.46/€. Assume that Boeing sells a currency forward contract of €10 million for delivery in one year, in exchange for a predetermined amount of U.S.dollars. Which of the following is/are true? On the maturity date of the contract Boeing will (0) have to deliver €10 million to the bank (the counter party of the forward contract). (ii) take delivery of $14.6 million (iii) have a zero net euro exposure (iv) have a profit, or a loss, depending on the future changes in the exchange rate, from this sale. Oi) and (iv) O (0) and (iv) O (i), (ii), and (iv) (0.0) and (iii)
The one-year risk-free rate in the U.S. is 4.340 percent and the one-year risk-free rate in Mexico is 6.64 percent. The one-year forward rate between the Mexican peso and the U.S. dollar is MXN12.366/$. What is the spot exchange rate? Assume interest rate parity holds. Multiple Choice MXN13.969/$ MXN14.939/$ MXN12.366/$ MXN12.639/$ MXN12.099/$
The spot rate between Japan and the U.S. is ¥100.37 = $1, while the one-year forward rate is ¥99.97 = $1. A one-year risk-free security in the U.S. is yielding 3.8 percent. What is the rate of return on a one-year risk-free security in Japan assuming that interest rate parity exists?

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