Exam 6: International Parity Relationships and Forecasting Foreign Exchange Rates

Assume that you are a retail customer (i.e.,you buy at the ask and sell at the bid).Use the information below to answer the following question. Bid ASK APR (\ /) \ 1.42=1.00 \1 .45=1.00 i\ 4\% (\ /) \ 1.48=1.00 \1 .50=1.00 i3\% If you had borrowed $1,000,000 and traded for euro at the spot rate,how many € do you receive?

Assume that you are a retail customer.Use the information below to answer the following question. Bid Ask Borrowing Lending (\ /) \ 1.42=1.00 \ 1.45=1.00 i\ 4.25\% 4\% (\ /\epsilon) \ 1.48=1.00 \ 1.50=1.00 i 3.10\% 3\% If you had borrowed $1,000,000 and traded for euro at the spot rate,how many € do you receive?

The Fisher effect can be written for the United States as: A.i_$ = ?_$ + E(?_$)+ ?_$ × E(?_$)B.?_$ = i_$ + E(?_$)+ i_$ × E(?_$)C.q = $\frac { 1 + \pi _ { \$ } } { ( 1 + e ) \left( 1 + \pi _ { £ } \right) }$ D. $\frac { F ( \$ / € ) } { S ( \$ / € ) }$ = $\frac { 1 + i _ { \$ } } { 1 + i _ { € } }$

When Interest Rate Parity (IRP)does not hold

Use the information below to answer the following question. Exchange Rate Interest Rate APR (\ /) \ 1.60=1.00 i\ 2\% (\ /) \ 1.58=1.00 i 4\% If you had €1,000,000 and traded it for USD at the spot rate,how many USD will you get?

The interest rate at which the arbitrager borrows tends to be higher than the rate at which he lends,reflecting the

Generally unfavorable evidence on PPP suggests that

Good,inexpensive,and fairly reliable predictors of future exchange rates include

Use the information below to answer the following question. Exchange Rate Interest Rate APR (\ /) \ 1.45=1.00 i\ 4\% (\ /) \ 1.48=1.00 i 3\% If you had €1,000,000 and traded it for USD at the spot rate,how many USD will you get?

The benefit to forecasting exchange rates

As of today,the spot exchange rate is €1.00 = $1.25 and the rates of inflation expected to prevail for the next year in the U.S.is 2 percent and 3 percent in the euro zone.What is the one-year forward rate that should prevail?

If a foreign county experiences a hyperinflation,

The main approaches to forecasting exchange rates are

A formal statement of IRP is

If the annual inflation rate is 5.5 percent in the United States and 4 percent in the U.K.,and the dollar depreciated against the pound by 3 percent,then the real exchange rate,assuming that PPP initially held,is

Will an arbitrageur facing the following prices be able to make money? $\begin{array}{rcccccc}\hline & \text { Bid } & \text { Ask } & & \text { Borrowing } & \text { Lending } \\F_{0}(\$ / €) & \$ 1.40-€ 1.00 & \$ 1.43-€ 1.00 & & i \$ 4.20 \% \mathrm{APR} & 4.10 \% \mathrm{APR} \\F_{36}(\$) & \$ 1.44-€ 1.00 & \$ 1.49-€ 1.00 & & i € 3.65 \% \mathrm{APR} & 3.50 \% \mathrm{APR}\end{array}$

Assume that you are a retail customer (i.e.,you buy at the ask and sell at the bid).Use the information below to answer the following question. Bid ASK APR (\ /) \ 1.42=1.00 \1 .45=1.00 i\ 4\% (\ /) \ 1.48=1.00 \1 .50=1.00 i3\% If you had €1,000,000 and traded it for USD at the spot rate,how many USD will you get?

Covered Interest Arbitrage (CIA)activities will result in

According to the monetary approach,the exchange rate can be expressed as

Studies of the accuracy of paid exchange rate forecasters