"Suppose that interest rates in the US andSouth Africa are 5% and 10% respectively. Ifinterest rates in the US are expected todecrease to 3%p.a, will there be anappreciation or a depreciation of the SouthAfrican Rand and what will the adjustedUSD/ZAR exchange rate be, if the currentspot exchange rate is 14.00ZAR?"

According to interest rate parity the exchange rate should adjust according change in interest…

Answered: Suppose that interést rates in the US…

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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If the interest rate in USD is 1%, and is 1.2% for Canadian Dollar deposits, find the forward price of a Canadian Dollar when the current exchange rate is 1.1, and expiration is three years from signing? b) If the Forward price of a Canadian dollar is currently 1.2, how could you use the synthetic to do arbitrage?
Suppose the real exchange rate is constant – say, at the level required for net exports (or the current account) to equal zero. In this case, if foreign inflation is higher than domestic inflation, what must happen to the nominal exchange rate over time?
The current spot rate between the euro and dollar is €1.0951/S. The annual inflation rate in the U.S is expected to be 2.93 percent and the annual inflation rate in euroland is expected to be 2.39 percent. Assuming relative purchasing power parity holds, what will the exchange rate be in two years? Group of answer choices €1.0892/$ €1.0775/$ €1.0833/$ €1.1070/$ €1.1010/S
Assume that you believe that purchasing power parity (PPP) holds. You are an Australian investor with 225,000 AUD to invest for the next year. The current exchange rate is AUD/EUR 0.62. The expected inflation in Germany is 1.3% while the expected inflation in Australia is 3.6%. Current interest rates in Germany are 0.5% and in Australia 4.1%. What is your expected yield on a German investment? 4.1% 5.9% O 0.5% 2.8% None of the other options are correct
If the real exchange rates between the USD and CAD, AUD, and BRL respectively are 1.20, 0.90, and 1.40 respectively with the percentage of trade between the US and Canada, US and Australia, and US and Brazil are 50%, 20%, and 30% respectively (assuming these are only countries on the planet!), what is the effective real exchange rate for the USD? Question options: a)0.9 b)1.4 c)1.2 d)1.0
Answer the following questions related to the foreign exchange rate and market. (1) The current exchange rate between the U.S. dollar and the Australian dollar is U.S. $1 = AUD$1.31. If the U.S. dollar is expected to appreciate by 5% relative to the Australian dollar, what is the new expected exchange rate? (2) The Argentinean peso trades at 0.06 peso per U.S. dollar. How many Argentinean pesos would you tip a taxi driver if you give her a $9 bill? (3) During the 1997 Asian financial crisis, the Thai baht was trading at $0.02475 per Thai baht. The Thai baht is trading at $0.03093 per Thai baht now. What is the percentage change in the Thai baht's value? Would you consider it an appreciation or depreciation? (4) Suppose that the U.S. Federal Reserve decides to raise interest rates to combat inflation. How will this decision affect the exchange rate between the U.S. dollar and the euro? Discuss with references or a practical example.
Assume interest rate parity holds. The one-year risk-free rate in the U.S. is 4.98 percent and the one-year risk-free rate in Japan is 5.37 percent. The spot rate between the Japanese yen and the U.S. dollar is ¥116.85/$. What is the one-year forward exchange rate? Multiple Choice ¥117.28/$ ¥119.15/$ ¥120.12/$ ¥116.85/$ ¥116.42/$
i need the answer quickly
Suppose that the interest rate on a US dollar deposit is 3% and the interest rate on a Japanese yen deposit is 1%. Today’s exchange rate is $1/¥ and the expected rate one year in the future is $1.2/¥, so $100 today can be exchanges for ¥100. Which currency deposit yield a higher expected rate of return (which currency investors should be willing to hold)? Why?
If the current exchange rate is $1.90/£, the one-year forward exchange rate is $2.06/£, and the interest rate on British government bills is 5% per year, what risk-free dollar-denominated return can be locked in by investing in the British bills? (Do not round intermediate calculations. Round your percentage answer to 2 decimal places.)
You observe the following current rates and prices today: the spot exchange rate today: AU$2.05 per U.K pound; the price level in Australia today: AU$4.00; and the price level in the U.K. today: 2.00 pounds (a) Calculate the real exchange rate of Australia against the U.K., q(AU/UK). (b) Calculate the over-/under-valuation of the Australian dollar.
Assume that the current exchange rate for Japanese Yen and U.S. Dollar is 140 JPY per USD. Considering Interest Rate Parity (IRP), if interest rates are higher in the United States than in Japan, what should we expect what for the forward exchange rate? IRP does not apply to this situation. O We should expect no change in the forward exchange rate. We would expect the forward exchange rate to move above 140 JPY per USD. We would expect the forward exchange rate to move below 140 JPY per USD.

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