You are given the following information. There are two countries, the US and Europe. It costs two dollars to buy one Euro. The nominal interest rate for a one-year US dollar deposits is 0.05 percent. Inflation will be two percentage points higher in the US than Europe during the next year. The Federal Reserve will keep the US real interest rate at 0.01. What is the percentage expected change in the spot exchange rate for the US dollar against the Euro? 0.05 0.02 0.03 0.10 The forward premium on the dollar is 0.02 0.03 0.05 0.10 The European nominal interest rate is 0.15 0.01 0.02 0.03 What is the European real interest rate? 0.0 0.01 0.02 0.10 What is the forward exchange rate for one year from now? 2.00 1.90 2.10 2.04
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You are given the following information. There are two countries, the US and Europe. It costs two dollars to buy one Euro. The nominal interest rate for a one-year US dollar deposits is 0.05 percent. Inflation will be two percentage points higher in the US than Europe during the next year. The Federal Reserve will keep the US real interest rate at 0.01. What is the percentage expected change in the spot exchange rate for the US dollar against the Euro?
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0.05
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0.02
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0.03
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0.10
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The forward premium on the dollar is
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0.02
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0.03
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0.05
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0.10
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-
The European nominal interest rate is
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0.15
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0.01
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0.02
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0.03
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-
What is the European real interest rate?
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0.0
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0.01
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0.02
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0.10
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-
What is the forward exchange rate for one year from now?
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2.00
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1.90
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2.10
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2.04
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