3. Money and foreign Exchange Markets in Frankfurt and New York are veryefficient. Using the following Market information, answer the followingquestions:Spot Exchange rate: 1.1200 $/ €One year interest rate in New York: 3.25%One year interest rate in Frankfurt: 2.15 %Expected inflation rate in Frankfurt: 1.15 %a) What do the financial Markets suggest for inflation in the US next year?b) Estimate Today's one year forward Exchange rate between the dollar and theeuro.c) Calculate real interest rate in both countriesd) Calculate Expected Spot Exchange rate in one year

Interest rates are very important in determining exchange rate and both changes according to that…

a) What do the financial Markets suggest for inflation in the US next year b) Estimate Today's one year forward Exchange rate between the dollar a euro. c) Calculate real interest rate in both countries d) Calculate Expected Spot Exchange rate in one year

a) What do the financial Markets suggest for inflation in the US next year b) Estimate Today's one year forward Exchange rate between the dollar a euro. c) Calculate real interest rate in both countries d) Calculate Expected Spot Exchange rate in one year

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 the U.S. interest rate on one year Treasury notes was 4.5%. We will use this as the annual interest rate in the U.S. And suppose that the interest rate on the one-year German Treasury note was 4.1%. The spot rate is 1.0162 EUR/USD.. And the 3-month forward rate is 1.0188 Eur/USD. Is there an opportunity for covered interest arbitrage? If so, what would be the total profit if we borrowed $20 million for 3 months? A. YES- $27,395.21 would be the profit B. YES- $29,385.41 would be the profit C. YES- $31,695.53 would be the profit D. YES- $33,875.42 would be the profit E. NO- there is no opportunity for a profit
You expect that the rate of inflation next year in Australia will be 3% and in the United States will be 2%. The spot rate of the Australian dollar is US$0.75 and the one year forward rate is US$0.70. (a) Using purchasing power parity, calculate the expected change in the exchange rate for the Australian dollar. (b) Using your answer to (a), calculate the expected spot rate of the Australian dollar in one year.
Today's spot exchange rate: 1 euro = $1.25.US interest rate (home interest rate) is 7%.EU interest rate (foreign interest rate) is 10%.a) If the IRP (Interest rate parity) holds, what should the forward exchange rate be today?b) Assume that today, you invest $500 in the EU market for one year and at the same time, enter a currency forward contract to sell euro in a year at the forward rate from part a). If today's spot exchange rate is: 1 euro=$1.32 instead of $1.25, show how much profits or losses you make next year.
29) Suppose that the two-year interest rates in Australia and the United States are 4.6% and 0.4% per annum, respectively, and the spot exchange rate between the Australian dollar (AUD) and the US dollar (USD) is 1.0500 USD per one unit of AUD. What is the theoretical forward exchange rate from the perspective of an Australian investor wanting to purchase USD in two years' time? A. 1.0134 AUD per USD. B. 1.0258 AUD per USD. C. 1.0234 AUD per USD..
17
Use the following information for the next 2 questions. Assume that the U.S. one-year interest rate is 8% and the one-year interest rate on Australian dollars is 13%. The U.S. annual inflation is expected to be 5%, while the Australian annual inflation is expected to be 7%. The current spot exchange rate of an Australian dollar is $0.689. You have $100,000 to invest for one year. Question 4 (6.25 points) You believe that IFE holds. What will be the yield on your investment if you invest in the Australian market? (HINT: You believe that IFE holds, so the spot rate one year later is the rate obtained from IFE. Note that the interest rate given in the problem is the nominal rate.) 13.00% 8.00% 18.23% 7.16%
Facing the increasing interest rate of the U.S. that will be even higher in the next several months, what is the trend of the exchange rate of your home country? If your home country runs a fixed exchange rates regime, what suggestions can you provide to the monetary authority?
Suppose that the interest rate on a US dollar deposit is 3% and the interest rate on a Japanese yen deposit is 1%. Today’s exchange rate is $1/¥ and the expected rate one year in the future is $1.2/¥, so $100 today can be exchanges for ¥100. Which currency deposit yield a higher expected rate of return (which currency investors should be willing to hold)? Why?
Assume that the Mexican peso currently trades at 11 pesos to the U.S. dollar. During the year U.S. inflation is expected to average 4%, while Mexican inflation is expected to average 5%. What is the current value of one peso in terms of U.S. dollars? Given the relative inflation rates, what will the exchange rates be 1 year from now? Which currency is expected to appreciate and which currency is expected to depreciate over the next year? The current value of one Mexican peso in terms of U.S. dollars, USS, is US$/MP. (Round to six decimal places.) Given the relative inflation rates, the exchange rate of one U.S. dollar in terms of Mexican pesos, MP, one year from now will be MP/US$. (Round to six decimal places.) Given the relative inflation rates, the exchange rate of one Mexican peso in terms of U.S. dollars, US$, one year from now will be US$ /MP. (Round to six decimal places.) ▼is expected to appreciate, while the is expected to depreciate over the next year. (Select from the…
please help me solve this. Explain to me step by step how to find the answer
Use the information below to answer the following questions. Currency per U.S. $ 1.2380 1.2353 Australia dollar 6-months forward Japan Yen 6-months forward U.K. Pound 6-months forward 100.3600 100.0200 .6789 .6784 Suppose interest rate parity holds, and the current six month risk-free rate in the United States is 5 percent. Use the approximate interest rate parity equation to answer the following questions. a. What must the six-month risk-free rate be in Australia? (Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What must the six-month risk-free rate be in Japan? (Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Australian risk-free rate b. Japanese risk-free rate c. Great Britain risk-free rate c. What must the six-month risk-free rate be in Great Britain? (Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) % % %
If the current exchange rate is $1.90/£, the one-year forward exchange rate is $2.06/£, and the interest rate on British government bills is 5% per year, what risk-free dollar-denominated return can be locked in by investing in the British bills? (Do not round intermediate calculations. Round your percentage answer to 2 decimal places.)

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