Suppose Kenya is expecting 8% inflation rate during the next one year as compared to3% inflation rate in the USA. If the exchange rate in the beginning of the year isSi/Kes.80. Suppose further that at the beginning of the period, interest rate in Kenya is7% as against 4% in the USA. At what rate of interest should Kenya rise or decline tomaintain the international fisher effect?b)

Suppose Kenya is expecting 8% inflation rate during the next one year as compared to 3% inflation rate in the USA. If the exchange rate in the beginning of the year is $1/Kes.80. Suppose further that at the beginning of the period, interest rate in Kenya is 7% as against 4% in the USA. At what rate of interest should Kenya rise or decline to maintain the international fisher effect?

Suppose Kenya is expecting 8% inflation rate during the next one year as compared to 3% inflation rate in the USA. If the exchange rate in the beginning of the year is $1/Kes.80. Suppose further that at the beginning of the period, interest rate in Kenya is 7% as against 4% in the USA. At what rate of interest should Kenya rise or decline to maintain the international fisher effect?

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 that exchange rate between the dollar and the peso is in equilibrium when inflation in the U.S. rises to 5.00%. At the same time, inflation in Mexico is 3.50%. If the inflation rate in the U.S. is denoted as I and the inflation rate in Mexico is If, then which of the following expressions represents the percent change in the peso under PPP? 1+If 1+In 1+In 1+1 - - 1 1 0.0145 -1.43% 1+/ +1 1+1 198.57% 1+If 1+1h +1 201.45% According to this formula, percentage change in the peso should be under PPP.
Suppose that in 2020, the rate of inflation in Denmark was 0.6%, and the rate of inflation in the Euro area was 2.2%. If the Euro depreciated relative to the Danish Krone by 0.75% in the same year, what would be the magnitude of the movement of the real exchange rate (RER) of the Euro relative to the Danish Krone? Euro appreciated in real terms by 2.35 percent. Euro depreciated in real terms by 2.30 percent. Euro appreciated in real terms by 100.83 percent. O d. Euro appreciated in real terms by 0.83 percent. O c.
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An investor based in the US invests $1,200 in Mexico and this generates a future value in one year of $1,344.44, US. If the interest rate in Mexico is 10% and the future expected exchange rate is Et41 = 5.4, this implies that the current exchange rate must be O 5.25 O 5.7 O 4.85 O 5.5
Assume the spot rate on the New Zealand dollar is NZ$1.0926, the risk-free nominal rate in the U.S. is 3.8 percent and 4.1 percent in New Zealand. What is the four-year forward rates best establishes the approximate interest rate parity condition?
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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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