International Fischer Forecasts. Assuming International Fisher applies to the coming year, forecast the following future spot exchange rates using the government bond rates for the respective country currencies: a. Japanese yen/U.S. dollar in one year b. Japanese yen/Australian dollar in one year c. Australian dollar/U.S. dollar in one year

International Fischer Forecasts. Assuming International Fisher applies to the coming year, forecast the following future spot exchange rates using the government bond rates for the respective country currencies: a. Japanese yen/U.S. dollar in one year b. Japanese yen/Australian dollar in one year c. Australian dollar/U.S. dollar in one year

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Assume that Ghanaian inflation rate is expected to average about 9% annually, while the Nigerian inflation rate is expected to average about 4% per annum. If the current spot rate between the naira and the cedi is N140/GHC, what is the expected spot rate between the two currencies in two years? Assume PPP holds?
Suppose the year 1, year 2 and year 3 forecasts for the rate of inflation in Denmark are 3%, 4% and 5% respectively. Suppose also that the year 1, year 2 and year 3 forecasts for the rate of inflation in France are 11%, 9% and 8% respectively. If the expected spot rate between the Danish Krone (DKK) and the EUR is EUR0.1344/DKK at the end of year 3, what is the current spot rate? a. EUR0.119024/DKK b. EUR0.151762/DKK c. EUR0.128269/DKK d. EUR0.111027/DKK e. Not enough information to answer this question.
Assume the spot rate on the New Zealand dollar is NZ$1.0926, the risk-free nominal rate in the U.S. is 3.8 percent and 4.1 percent in New Zealand. What is the four-year forward rates best establishes the approximate interest rate parity condition?
The US 1 year spot rate is 3.61% and the Mexican 1 year spot rate is 7.44%. A US investor purchases a Mexican corporate bond with an expected 1 year return of 9.76%, as measured in Mexican peso. The current USD/MXP exchange rate is 0.18. If the investor decides to hedge the currency risk exposure in the forward market, what would be the expected return on this portfolio, if interest rate parity holds?
Omni Advisors, an international pension fund manager, uses the concepts of purchasing power parity (PPP) and the International Fisher Effect (IFE) to forecast spot exchange rates. Omni gathers the financial information as follows: Base price level Current U.S. price level Current South African price level Base rand spot exchange rate Current rand spot exchange rate Expected annual U.S. inflation Expected annual South African inflation Expected U.S. one-year interest rate Expected South African one-year interest rate 100 105 111 $ 0.189 $ 0.172 Required: Calculate the following exchange rates (ZAR and USD refer to the South African rand and U.S. dollar, respectively): X Answer is complete but not entirely correct. $ $ $ 7% 5% a. The current ZAR spot rate in USD that would have been forecast by PPP. Note: Do not round intermediate calculations. Round your answer to 4 decimal places. ZAR spot rate under PPP Expected ZAR spot rate Expected ZAR under PPP 10% 8% b. Using the IFE, the…
Suppose inflation rates in the U.S. and France are expected to be 4% and 9%, respectively, next year and 6% and 7%, respectively, in the following year. If the current spot rate is $.1050, then the expected spot value of the franc in two years is a. $.1111 b. $.0992 c. $.1074 d. $.1024
An international pension fund manager, uses the concepts of purchasing power parity (PPP) and the International Fisher Effect (IFE) to forecast spot exchange rates. Omni gathers the financial information as follows: Base price level 100 Current U.S. price level 105 Current South African price level 111 Base rand spot exchange rate $ 0.194 Current rand spot exchange rate $ 0.177 Expected annual U.S. inflation 7 % Expected annual South African inflation 5 % Expected U.S. one-year interest rate 10 % Expected South African one-year interest rate 8 % Calculate the following exchange rates (ZAR and USD refer to the South African rand and U.S. dollar, respectively): a. The current ZAR spot rate in USD that would have been forecast by PPP. (Do not round intermediate calculations. Round your answer to 4 decimal places.) b. Using the IFE, the expected ZAR spot rate in USD one year from now. (Do not round intermediate calculations.…
Assume interest rate parity (IRP). The nominal one-year rate in the USA will be 15%, and in Australia it will be 11% for one year. The Australian dollar (AUD) SPOT exchange rate is 0.45 USD/AUD. AUD 15 million will be required in one year. A one-year Australian dollar (AUD) forward contract is purchased today. How many US dollars (USD) will be used in one year to fulfill your forward contract?The alternatives area. Premium of 3.603604%, FWD exchange rate 0.466216216 AUD/USD and $6,993,243.24 USD to be needed.b. Premium of 3.603604%, FWD exchange rate 0.466216216 USD/AUD and $6,993,243.24 to be required. c. Discount of 3.478261%, FWD exchange rate 0.434347826 AUD/USD and $6,515,217.39 to be required.d. Discount of 3.478261%, FWD exchange rate 0.434347826 USD/AUD and $6,515,217.39 to be required.
The spot rate between Japan and the U.S. is ¥100.37 = $1, while the one-year forward rate is ¥99.97 = $1. A one-year risk-free security in the U.S. is yielding 3.8 percent. What is the rate of return on a one-year risk-free security in Japan assuming that interest rate parity exists?
Assume that the Ghanaian inflation rate is expected to average about 9% annually, while the Nigerian inflation rate is expected to average about 4% per annum. If the current spot rate between the naira and cedi is N140/GHC, what is the expected spot rate between the two currencies in two years? Assume PPP hold?
Assume that interest rate parity holds and that 90-day risk-free securities yield 3% in the United States and 3.3% in Germany. In the spot market, 1 euro equals $1.50. What is the 90-day forward rate?
If the U.S. interest rate is higher than the U.K. interest rate, will the U.K. investors place short-term funds in the U.S.? Explain. Assume the investment is covered. If the rate of inflation in the European Union (EU) is above the rate of inflation in the U.S., by 4 percentage points and the dollar depreciates against the euro by 5% during the same time period, what is expected to happen to the real exchange rate? The e exchange rate is defined as the dollar price of euro($/€).

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