Assume that the current exchange rate for Japanese Yen and U.S. Dollar is 140 JPY per USD. Considering Interest Rate Parity (IRP), if interest rates are higher in the United States than in Japan, what should we expect what for the forward exchange rate? IRP does not apply to this situation. We should expect no change in the forward exchange rate. We would expect the forward exchange rate to move above 140 JPY per USD. We would expect the forward exchange rate to move below 140 JPY per USD.

Assume that the current exchange rate for Japanese Yen and U.S. Dollar is 140 JPY per USD. Considering Interest Rate Parity (IRP), if interest rates are higher in the United States than in Japan, what should we expect what for the forward exchange rate? IRP does not apply to this situation. We should expect no change in the forward exchange rate. We would expect the forward exchange rate to move above 140 JPY per USD. We would expect the forward exchange rate to move below 140 JPY per USD.

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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Consider the following table. There are two countries and two goods. Assume both countries have the same price table: Time t t+1 P1 $8 $10 P2 $4 $5 a. Assume commodity price parity. What is the foreign currency price of the two goods at the two points in time? What is the domestic inflation rate? What is the foreign inflation rate. b. Suppose PPP is known to hold as is covered interest parity between two countries. What determines any differences between the expected real returns on risk free interest bearing assets in the two countries?
Suppose the exchange rate for Japanese yen, S0, is currently Yen160 = $1. If the interest rate in the United States is RUS = 10% and the interest rate in Japan is Rj = 7%, then what must the forward rate be to prevent covered interest arbitrate?
Assume that the bilateral spot exchange rate between the € and the $ is E€/$=0.82, the Eurozone's annual interest rate is 4%, and the annual forward exchange rate is F€/$=0.84. i. Find the current US interest rate that satisfies the covered interest-rate parity ii. Suppose that the annual US interest rate is the one you found in (i) and the Eurozone introduces a tax t=7.5% on capital gains from investing abroad (e.g., on foreign bonds, deposits abroad, etc.). Find the new annual forward exchange rate F*€/$ that satisfies the covered interest-rate parity on an after-tax basis
Exchange rates can move up or down, and spot rates could move favourably as well as adversely. However, many companies prefer to hedge their currency risks by fixing an exchange rate now for a future transaction, even if this means that it will not be able to benefit from any favourable future movement in the exchange rate. Required Discuss the methods of hedging exposures to foreign exchange risk.
Under a flexible exchange rate system, an increase in the value of the U.S. dollarin tems of other currencies is referred to as Answer 1. a depreciation of the U.S. dollar. 2. an appreciation of the U.S. dollar. 3. a monetizing of the U.S. dollar. 4. a devaluation of the U.S. dollar.
Greenland and Brownland are two countries which regularly trade with each other. The current exchange rate is 1 Green = 3 Brown. Wetland, is a third country which also has trade relations with Greenland and Brownland. If interest rates Wetland and Greenland increase, while interest rates in Brownland remain constant, what would happen t the current exchange rate between Greenland and Brownland. Select one: a. Exchange rate will move from 1 Green = 3 Brown towards 1 Green = 4 Brown b. No Change c. Exchange rate will move from 1 Green = 3 Brown towards 1 Green = 2 Brown
Suppose you have developed a hairbrained scheme to purchase art, mint a NFT, and then sell it for a bubbly profit. For your scheme, you need to import USD 99570.85 worth of art into Australia. You are concerned that the exchange rate might move adversely during this time. Suppose the current exchange rate is 0.704 You see the following instruments available: • A Put option on AUD with a strike price (in USD/AUD) of 0.6 with a 1.3% premium • A Call option on AUD with a strike price (in USD/AUD) of 0.88 with a 1.7% premium • A forward rate agreement with a FRA rate of 3.5% • A customized forward forward arrangement of 4% Suppose you decide to hedge with the most relevant instrument. Assume that the USD/AUD exchange rate becomes 0.45. What is the overall cost of the art purchase in AUD, including any fees? O a. 163794.04825 O b. 113148.69318 O c. 165951.41667 O d. None of these options O e. 111225.16540 O f. Not enough information O g. 164656.99562
You observe the following current rates and prices today: the spot exchange rate today: AU$2.05 per U.K pound; the price level in Australia today: AU$4.00; and the price level in the U.K. today: 2.00 pounds (a) Calculate the real exchange rate of Australia against the U.K., q(AU/UK). (b) Calculate the over-/under-valuation of the Australian dollar.
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A Canadian investor is considering investing in France. Use the UIP condition to explain how each of the following situation would affect the value of the euro and the Canadian dollar. a. An increase in Canadian interest rates b. A decrease in France's interest rates c. A decrease in the expected future exchange rate, Ee CAD/E
23) If the Canadian dollar to U.S. dollar exchange rate is 1.30 and the British pound to U.S. dollar exchange rate is 0.77, what must the Canadian dollar to British pound exchange rate be?
"The spot exchange rate for Brazilian Real is Real4.1/$, while the 9 months forward exchange rate is Real4.5/$. This implies that" Owe cannot make any conclusions about the interest rates in US and Brazil based on the given numbers the 9-months risk-free interest rate in US is lower than that in Brazil the 9-months risk-free interest rate in US is the same as that in Brazil the 9-months risk-free interest rate in US is higher than that in Brazil

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