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Which one of the following statements is correct about the exchange rates?

Which one of the following statements is correct about the exchange rates?

Essentials Of Investments
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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Which one of the following statements is correct about the exchange rates? A country with high inflation may see its currency to appreciate according to the asset market approach. Current interest rates are is=1% and iç-3.5% and they will stay constant for many years. We would expect the Euro to appreciate against dollar according to the uncovered interest rate parity. When the central bank of Australia raises interest rate to a level that is more than all traders expected, i.e. an unexpected rise in interest rate, the Australian dollar will depreciate. O The European Central Bank announces to increase interest rate by 0.1%. The market consensus was 0.2% increase before the announcement. Upon the news, we would see euro to appreciate. Price of currency futures(or forwards) will be slightly lower than the spot exchange rate at maturity.
Transcribed Image Text:Which one of the following statements is correct about the exchange rates? A country with high inflation may see its currency to appreciate according to the asset market approach. Current interest rates are is=1% and iç-3.5% and they will stay constant for many years. We would expect the Euro to appreciate against dollar according to the uncovered interest rate parity. When the central bank of Australia raises interest rate to a level that is more than all traders expected, i.e. an unexpected rise in interest rate, the Australian dollar will depreciate. O The European Central Bank announces to increase interest rate by 0.1%. The market consensus was 0.2% increase before the announcement. Upon the news, we would see euro to appreciate. Price of currency futures(or forwards) will be slightly lower than the spot exchange rate at maturity.
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