From the base price level of 100 in 1979, Saudi Arabian and U.S. price levels in 2008 stood at 280 and 572, respectively. Assume the 1979 $/riyal exchange rate was $0.58/riyal. Suggestion: Using purchasing power parity, adjust the exchange rate to compensate for inflation. That is, determine the relative rate of inflation between the United States and Saudi Arabia and multiply this times $/riyal of 0.58. What should the exchange rate be in 2008? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Exchange rate Iriyal

From the base price level of 100 in 1979, Saudi Arabian and U.S. price levels in 2008 stood at 280 and 572, respectively. Assume the 1979 $/riyal exchange rate was $0.58/riyal. Suggestion: Using purchasing power parity, adjust the exchange rate to compensate for inflation. That is, determine the relative rate of inflation between the United States and Saudi Arabia and multiply this times $/riyal of 0.58. What should the exchange rate be in 2008? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Exchange rate Iriyal

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 the annual rate of inflation in Taiwan is 6.66%, and the annual rate of inflation in Mexico is 5.99%. If the Mexican peso depreciates relative to the Taiwan dollar by 4% in real terms, then which of the following would be correct? a, Nominal exchange rate appreciation by 4.825%. b. Nominal exchange rate depreciation by 3.393%. c. Nominal exchange rate appreciation by 3.512%. d. Nominal exchange rate depreciation by 4.603%. e. There is no change in the nominal exchange rate.
In June 2010, an investor is considering investing in bank deposits in Korea and Japan. Theannual interest rate on Korean deposits is 6.25%, versus 3.75% on deposits in Japan. Supposethat the forward rate (for June 2011) in June 2010 is equal to F(won/yen) = 8.2. In June 2010, theexpected exchange rate is 8.2 won/¥. For the remainder of this question, use the linearapproximations for uncovered and covered interest rate parity. The spot exchange rate in June2010 is E(won/yen) = 8 a. Does covered interest parity hold in this example?b. Does uncovered interest parity hold in this example?c. Suppose the exchange rate in June 2011 is equal to 7.472 won per yen. Calculate theinvestor’s actual return, assuming that he invests in Japanese deposits in June 2010.How do these answers compare with those from (b)?d. Consider two investors: one uses speculation and the other uses hedging. Based on yourprevious answers, which one earned a higher return (or smaller loss) on Japanese assetsbetween June…
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Assume the current exchange rate between the US dollar and the UK Pound Sterling is 0.6 ($ per pound). Assuming the purchase price parity theory holds, what is the new exchange rate ($ per pound) if the price level in the US increases by 5% and the price level in the UK increases by 20%?
The theory of purchasing power parity (PPP) states that in the long-run exchange rates between two countries adjusts so that the price of an identical good is the same when expressed in the same currency. A scanner sells for $65.45 in the United States. The exchange rate between the U.S. dollar and the Swiss franc (SFr) is $0.8245 per Swiss franc. Assuming that PPP holds true, how much does the same scanner cost in Switzerland? SFr 95.26 SFr 83.35 SFr 99.23 SFr 79.38
The one-year risk-free rate in the U.S. is 4.340 percent and the one-year risk-free rate in Mexico is 6.64 percent. The one-year forward rate between the Mexican peso and the U.S. dollar is MXN12.366/$. What is the spot exchange rate? Assume interest rate parity holds. Multiple Choice MXN13.969/$ MXN14.939/$ MXN12.366/$ MXN12.639/$ MXN12.099/$
Suppose Dassie Bank quoted the exchange rate of Singapore dollar in US$ at $0.60, the pound rate in US$ at $1.50, and the pound rate in Singapore dollars at S$2.6. For a US resident having $1,000 to do triangular arbitrage, she/he will end up withAnswerUS dollars after the arbitrage.
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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