you observe the following current rates: Spot exchange rate: $0.0009/KRW Annual interest rate on 30-day U.S dollor-denominated bond:4% Annual interest rate on 30-day KRW denominated bond: 4% a. If uncovered interest parity hold, what spot exchange rate do investors expect to exist in 30 days? explain (5%) b. Because of the Proclamation of the Panmunjom, investors expect the exchange rate to be $0.0010/KRW in 30 days/what will happen in the foreign exchange market? explain.(7%)
you observe the following current rates: Spot exchange rate: $0.0009/KRW Annual interest rate on 30-day U.S dollor-denominated bond:4% Annual interest rate on 30-day KRW denominated bond: 4% a. If uncovered interest parity hold, what spot exchange rate do investors expect to exist in 30 days? explain (5%) b. Because of the Proclamation of the Panmunjom, investors expect the exchange rate to be $0.0010/KRW in 30 days/what will happen in the foreign exchange market? explain.(7%)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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you observe the following current rates: Spot exchange rate: $0.0009/KRW Annual interest rate on 30-day U.S dollor-denominated bond:4% Annual interest rate on 30-day KRW denominated bond: 4%
a. If uncovered interest parity hold, what spot exchange rate do investors expect to exist in 30 days? explain (5%)
b. Because of the Proclamation of the Panmunjom, investors expect the exchange rate to be $0.0010/KRW in 30 days/what will happen in the foreign exchange market? explain.(7%)
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