If you want to forecast the USD versus the Euro, what predictors should you consider respectively in (i) the short term ; (ii) the medium term; and (iii) the long term?
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- What security provides a good estimate of the long-term nominalrisk-free rate?Explain with examples how to measure exchange rate risk for long positions and short positions Notes : Use your own numbers in making calculations!1. What is the most accurate measure of interest rates? a) Current Yield b) Nominal Interest Rate c) Simple Interest Rate d) Yield to Maturity
- Explain Interest Rates and Inflation Expectation?In an inflationary period, what is the difference between (a) inflated dollars and “then-current” future dollars, and (b) “then-current” future dollars and constant-value future dollars?Identify the correct mathematical expression for the relationship between nominal interest rates and real interest rates. (R denotes the nominal rate of return, r denotes the real rate of return, and h denotes the inflation rate.) Multiple choice question. R = r + h (1 + R) = (1 + r) × (1 + h) (1 + h) = (1 + R) × (1 + r) (1 + r) = (1 + R) × (1 + h)
- According to the ,long-term interest rates are a function of expected short-term interest rates Maturity theory Expectations theory Market segmentation theory Preferred habitat theorySuppose an investor observes an upward term structure of interest rate. Answer the followingquestions. (a) According to the expectation hypothesis, what will be the investor’s forecast about futurechange of interest rate (increase, decrease or unchanged)? (b) What will the investor say about the future change of interest rate according to liquiditypreference theory? Explain your argument.If the yield curve is downward sloping, what would the expectations theory suggest about expected future short-term interest rates?
- Which of the following is included inthe risk-free rate? O A. the default premium O B. the expected inflation premium O C. the liquidity premium O D. the maturity premium O E. All of the above are included in the risk-free rate. Reset SelectionSome characteristics of the determinants of nominal interest rates are listed as follows. Identify the components (determinants) and the symbols associated with each characteristic: Characteristic It changes over time, depending on the expected rate of return on productive assets exchanged among market participants and people's time preferences for consumption. This is the rate on a Treasury bill or a Treasury bond. This is the premium added to the real risk-free rate to compensate for a decrease in purchasing power over time. It is based on the bond's credit rating; the higher the rating, the lower the premium added, thus lowering the interest rate. It is based on the bond's marketability and trading frequency; the less frequently the security is traded, the higher the premium added, thus increasing the interest rate. As interest rates rise over time, bond prices fall, and as interest rates fall, bond prices rise. Because interest rate changes are uncertain over the life of the…
