If a country can give up one unit of future consumption and as result increase its current consumption by 0.94 units, its real rate of interest must be: (a) 1.4% (b) 3.4% (c) 6.4% (d) 9.4%
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- Accounting questionProvide correct answer General AccountingAccording to the interest parity condition, if the domestic interest rate is 12 percent and the foreign currency is expected to depreciate by 2% against domestic currency. Then the foreign asset must offer an interest rate of ________ %. Question 24 options:
- Assume the spot rate between the uk and the US is .€ .6789= $1 while the one year Foward rate is €.6782=$1. The risk free rate in the UK is 3.1 percent. The risk free rate in the U.S is 2.9 percent. How much profit can you earn for the year on a loan of $1,500 by utilizing covered interest abitrage?You can buy or sell the £ spot at $1.98 to the pound. You can buy or sell the pound one-year forward at $2.01 to the pound. If U.S. annual interest rates are 5%, what must be the approximate one-year British interest rate if interest rate parity holds? A. 4.00% B. 2.75% C. 5.25% D. 3.48%Assume that the U.S. interest rate is 7 percent and the euro’s interest rate is 4 percent. Assume that the euro’s forward rate has a premium of 2 percent. a. What is the effective financing rate from financing with euros? Should a U.S. firm finance with euros?
- Let in and if represent the nominal 1-year interest rates for a home and foreign country, respectively. According to the international Fisher effect (IFE) theory, which of the following best represents the predicted change in the foreign currency ef? O ○ ef = ef = 1-in 1-i 1+if 1+i - - 1 1 ○ ef 1+in ○ ef = +1 1+i ○ ef = 1+in 1+if - 1The one year forward premium for euro against the dollar is 4%. If the interest rate in the euro zone is 4.5% what should be the interest rate in the US?Ay 1. Imagine you observe the following situation. Would you expect this situation to change? Why? i(euro zone)= 1% per annum i(Sweden)=0.9% per annum S(€/SEK)=0.1 F(1 year, €/SEK)=0.106
- The spot rate between the U.K. and the U.S. is £.7534/$, while the one-year forward rate is £.7524/$. The risk-free rate in the U.K. is 4.27 percent and in the United States is 2.58 percent. How much in profit can you earn on $9,000 utilizing covered interest arbitrage?A European firm borrows MXN from a Mexico bank at a 7% interest rate. Over that same time, the Euro appreciates 2.70% against the MXN. What is the European firm's €-denominated equivalent cost of borrowing?The $/£ spot rate is $1.60/£1. The UK interest rate is 4% and the US interest rate is 9%. Calculate the one year forward rate using the covered interest parity formula. State if the pound is at a forward discount or at a forward premium, and why.