Hong Kong fixes its exchange rate with the US$ at HK$7.8/US$, but the financial market expects a 10% chance of a 30% devaluation of the HK$ in the coming month and a 90% chance of no devaluation. To maintain the fixed exchange rate at HK$7.8/US$, the interest rate differential between the HK$ and US$ (measured in annual %) needs to be %

Hong Kong fixes its exchange rate with the US$ at HK$7.8/US$, but the financial market expects a 10% chance of a 30% devaluation of the HK$ in the coming month and a 90% chance of no devaluation. To maintain the fixed exchange rate at HK$7.8/US$, the interest rate differential between the HK$ and US$ (measured in annual %) needs to be %

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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Similar questions

Suppose the inflation rate in Canada is 1 percent and the inflation rate in Mexico is 3 percent. If the nominal exchange rate in terms of Mexican pesos per Canadian dollar falls by 4 percent, by how much will the real exchange rate (in terms of Mexican goods per Canadian good) change?
Suppose the current exchange rate for the Polish zloty is Z3.3. The expected exchange rate in 5 years. The expected exchange rate in 5 years is Z3.56. What is the difference in the annual inflation rates for the United States and Poland over this period? Assume that the anticipated rate is constant for both countries.
In alternative universe, the Australian government has decided to enter into a target-zone arrangement with the United States. Australian firm K-Roo has a USD 150,000 payable due in 180 days. Assuming the current exchange rate is AUD1.44/USD, the central rate for the USD/AUD is set at 0.5 USD per AUD, and the currencies are allowed to fluctuate with a 10% band on either side, what is the maximum possible amount (in terms of AUD) that K-Roo could lose due to changes in the future exchange rate? Select one: a. 114000.00 b. 101416.67 c. 133500.00 d. 21600.00 e. -54000.00
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.
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/$

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