Exam 6: International Parity Relationships and Forecasting Foreign Exchange Rates

Please note that your answers are worth zero points if they do not include currency symbols ($, €) -There is (at least)one profitable arbitrage at these prices.What is it?

Generating exchange rate forecasts with the fundamental approach involves

The main approaches to forecasting exchange rates are

The Fisher effect can be written for the United States as:

A U.S.-based currency dealer has good credit and can borrow $1,000,000 for one year.The one-year interest rate in the U.S.is i_$ = 2% and in the euro zone the one-year interest rate is i_€ = 6%.The spot exchange rate is $1.25 = €1.00 and the one-year forward exchange rate is $1.20 = €1.00.Show how to realize a certain dollar profit via covered interest arbitrage.

If IRP fails to hold

The random walk hypothesis suggests that

The benefit to forecasting exchange rates

Covered Interest Arbitrage (CIA)activities will result in

Assume that you are a retail customer Please note that your answers are worth zero points if they do not include currency symbols ($, €) -If you had €1,000,000 and traded it for USD at the spot rate,how many USD will you get?

Please note that your answers are worth zero points if they do not include currency symbols ($, €) -If you had borrowed $1,000,000 and traded for euro at the spot rate,how many € do you receive?

The Efficient Markets Hypothesis states

If a foreign county experiences a hyperinflation,

Assume that you are a retail customer Please note that your answers are worth zero points if they do not include currency symbols ($, €) -There is (at least)one (smallish)profitable arbitrage at these prices.What is it?

The International Fisher Effect suggests that

A formal statement of IRP is

Generally unfavorable evidence on PPP suggests that

Assume that you are a retail customer Please note that your answers are worth zero points if they do not include currency symbols ($, €) -If you borrowed €1,000,000 for one year,how much money would you owe at maturity?

Assume that you are a retail customer (i.e. you buy at the ask and sell at the bid). Please note that your answers are worth zero points if they do not include currency symbols ($, €) -USING YOUR PREVIOUS ANSWERS and a bit more work,find the 1-year forward BID exchange rate in $ per € that satisfies IRP from the perspective of a customer.

According to the monetary approach,what matters in exchange rate determination are