In January 2023, the exchange rate between Euro (€) and U.S. dollar ($) is $0.99/€. The nominal interest rate for the E.U. and U.S for the next 1-year period is 11% and 8%, respectively. Also, the real interest rate for the E.U. and U.S for the next 1-year period is 5% and 6%, respectively. What would you forecast the exchange rate to be at around January 2024?
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Give typed solution only
In January 2023, the exchange rate between Euro (€) and U.S. dollar ($) is $0.99/€.
The nominal interest rate for the E.U. and U.S for the next 1-year period is 11%
and 8%, respectively. Also, the real interest rate for the E.U. and U.S for the next
1-year period is 5% and 6%, respectively. What would you
rate to be at around January 2024?
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Solved in 2 steps
- The current spot rate between the euro and dollar is €1.0951/S. The annual inflation rate in the U.S is expected to be 2.93 percent and the annual inflation rate in euroland is expected to be 2.39 percent. Assuming relative purchasing power parity holds, what will the exchange rate be in two years? Group of answer choices €1.0892/$ €1.0775/$ €1.0833/$ €1.1070/$ €1.1010/SSuppose that the current spot exchange rate is €1.72 per £ and the one-year forward exchange rate is €1.80 per £. The one-year interest rate is 5.4% in euros and 5.2% in pounds. You can borrow at most €1,000,000 or the equivalent pound amount, i.e., £581,395, at the current spot exchange rate. Required: a. If you are a euro-based investor, how can you realize a guaranteed profit from covered interest arbitrage and the size of arbitrage profit? b. How will the interest rate parity be restored as a result of the above transactions? c. If you are a pound-based investor, what is the covered arbitrage process and the size of the arbitrage profit? Complete this question by entering your answers in the tabs below. Required A Required B Required C If you are a euro-based investor, how can you realize a guaranteed profit from covered interest arbitrage and the size of arbitrage profit? Note: Do not round intermediate calculations. Round off the final answer to nearest whole dollar. Profit from…On January 31, 2019 the exchange rate between the US dollar and the euro was 1.14 USD/EUR. At the end of 2014, it was at 1.23 USD/EUR. Couple of years ago, A Big Mac cost 3.54 USD in the US. The price in the Euro Area was 3.42 EUR. Exchange rate was 1.28 USD/1 EUR. c) If law of one price would be true how much should it cost in the Euro Area? d) If Big Mac prices are perfect for determining PPP, is the Euro in comparison to the USD overvalued or undervalued? For how much? e) What is a definition of a nominal exchange rate in the value notation? Write an example.
- Analyse the scenario below. In each case, explain your reasoning Suppose that the current EUR/GBP exchange rate is £0.92 per euro. The current2-year interest rates are: GBP 4%, EUR 5%. Suppose further that you can use a 2-year forward contract with a EUR/GBP rate of £0.91 per euro. Could this contractbe used for an arbitrage opportunity? If yes, provide an example. Calculatearbitrage profit and explain how this profit can be earnedToday's spot exchange rate: 1 euro = $1.25.US interest rate (home interest rate) is 7%.EU interest rate (foreign interest rate) is 10%.a) If the IRP (Interest rate parity) holds, what should the forward exchange rate be today?b) Assume that today, you invest $500 in the EU market for one year and at the same time, enter a currency forward contract to sell euro in a year at the forward rate from part a). If today's spot exchange rate is: 1 euro=$1.32 instead of $1.25, show how much profits or losses you make next year.The current exchange rate is $1.19 / Euro. The expected inflation rate for the next year in the U.S. is 0.62% while it is 0.79% in the EU. What would be the expected exchange rate in one year’s time if Purchasing Power Parity holds? Provide your answer till 4 digits after the decimal point. Is the Euro expected to appreciate or depreciate?
- In April 2018, the exchange rate between the U.S. Dollar and the euro is 1 euro = $ 1.21. If in the following months, inflation in the euro zone is lower than the inflation in the U.S., then (other things equal) a possible exchange rate would be: 1 euro = $1 1 euro = $1.6 1 euro = $0.94Han Co wishes to predict the exchange rate between the dollar ($) and the euro (€), based on the following information: Spot exchange rate $1= €1.6515 Dollar interest rate 4.5% per year Euro interest rate 6.0% per year Which of the following is the one-year forward rate, using interest rate parity theory? O $1= €1.2386 O $1= €1.6752 O $1= €2.2020 O $1= €1.6281Suppose the current USD/EUR spot exchange rate is 1.20$/ €. At the same the euro interest rate amount to 10% per year while the dollar interest rate is 0% per year. a. What is the no-arbitrage one-year USD/EUR forward exchange? b. Suppose the one-year USD/EUR forward exchange was 1.25$/ €. How could you make money from this situation? 4
- Suppose the spot price of a euro in dollars is $0.932. The U.S. interest rate for 90 days is 6.875% and the euro rate for 90 days is 4.450%. All interest calculations are done as rate times (#days/360). a. What is the rate for a 90-day forward contract on the euro? b. Suppose the euro forward contract is currently quoted at $0.95. What type of transaction(s) should an arbitrageur conduct to take advantage of the apparent mispricing Only typed answerIf one year forward rate is EUR2.1830/OMR and interest rate for EURO is 6% per annum and for OMR is 8% per annum. What should be spot exchange rate if interest rate parity holds and OMR is the Home currency? EUR2.14257/OMR USD2.0819/OMR USD2.22418/OMR None of theseSuppose that the current spot exchange rate is €0.80/$ and the three-month forward exchange rate is €0.7813/$. The three-month interest rate is 5.60% per annum in the United States and 5.40% per annum in France. Assume that you can borrow $1,000,000. How much can you realize via covered interest arbitrage? €10,800. $23,758. €37,757. $7,813. $37,757. $14,000.
