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 $0.178 $0.161 Answer is complete but not entirely correct 7% 5% 10% 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.)

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 $0.178 $0.161 Answer is complete but not entirely correct 7% 5% 10% 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.)

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter9: Forecasting Exchange Rates

Section: Chapter Questions

Problem 25QA

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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…
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 ZAR spot rate under PPP 100 105 111 $0.190 $0.173 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.) Expected ZAR spot rate 10% 8% 138 11% b. Using the IFE, the expected ZAR spot rate in USD one year from now. (Do not round intermediate calculations. Round…
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 ZAR spot rate under PPP 100 105 111 Expected U.S. one-year interest rate Expected South African one-year interest rate 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.) Expected ZAR spot rate $ 0.186 $ 0.169 7% 5% 10% 8% b. Using the IFE, the expected ZAR spot rate in USD one year from now. (Do not round intermediate calculations. Round…
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 100 Current U.S. price level 105 Current South African price level 111 Base rand spot exchange rate $ 0.192 Current rand spot exchange rate $ 0.175 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% Required: Calculate the following exchange rates (ZAR and USD refer to the South African rand and U.S. dollar, respectively): 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. Using the IFE, the expected ZAR spot rate in USD one year from now. Note: Do not round intermediate calculations. Round your…
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.…
A money market mutual fund manager is looking for some profitable investment opportunities and observes the following one-year interest rates on government securities and exchange rates: rUS = 12%, rUK = 9%, S = $1.50/£, f = $1.6/£, where S is the spot exchange rate and f is the forward exchange rate. Which of the two types of government securities would constitute a better investment?
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The table below contains the average returns, standard deviation of returns and correlation of returns with US indexfor different countries. All data are in US dollar terms. The US T-Bill rate is 3%. Determine which of thesecountries are suitable for a US based investor to diversifv into. Show the necessarv calculationsUS T-Bill Rate %3
Which of the following statements is CORRECT? Forward rate should provide more accurate forecasts for currencies in low-inflation countries than the spot rate. The technical forecasting is based on a wide range of data regarded as fundamental economic variables that determine exchange rates. In contrast, the fundamental forecasting focuses on a much smaller set of data, typically the historical exchange rates. O Technical forecasting model can reliably forecast long-run exchange rates. The spot rate is a useful Market-Based Forecast if the expected percentage change in the currency is zero over the forecast period. There are three main types of methods to forecast exchange rates: technical forecasting. fundamental forecasting, and market-based forecasting. These three methods always make the same directional prediction regarding whether a currency is appreciating or
PIMCO gives the following example of an Inflation Linked Bond (ILB), called a Treasury Inflation Protected Security (TIPS) in the US. "How do ILBs work? An ILB’s explicit link to a nationally-recognized inflation measure means that any increase in price levels directly translates into higher principal values. As a hypothetical example, consider a $1,000 20-year U.S. TIPS with a 2.5% coupon (1.25% on semiannual basis), and an inflation rate of 4%. The principal on the TIPS note will adjust upward on a daily basis to account for the 4% inflation rate. At maturity, the principal value will be $2,208 (4% per year, compounded semiannually). Additionally, while the coupon rate remains fixed at 2.5%, the dollar value of each interest payment will rise, as the coupon will be paid on the inflation-adjusted principal value. The first semiannual coupon of 1.25% paid on the inflation-adjusted principal of $1,020 is $12.75, while the final semiannual interest payment will be 1.25% of $2,208, which…
In order to be able to support the national currency and to achieve inflation,as it should be in the parameter(s)? And this trip, the currency is risky,What is the effect on interest risk, price risky, country profitable risk? analyze andPlease comment.Moody's rating downgraded from 'Ba' to 'B',Foreign direct investment is low,Portfolio Investments are high,Inflation rate: 15%Interest rate: 10%TL / $ = 0.2755
The following are annual rates of return for T-bills in Ghana and Share on the Ghana Stock exchange Year T-bill Shares on Ghana Stock Exchange2016 0.063 0.1502017 0.081 0.0432018 0.076 0.3742019 0.090 0.1922020 0.085 0.106a. Compute the arithmetic mean rate of return and standard deviation of rates of return for the two series. b. Discuss these two alternative investments in terms of their arithmetic average rates of return, their absolute risk, and their relative risk. c. Compute the geometric mean rate of return for each of these investments. Compare the arithmetic mean return and geometric mean return for each investment and discuss the difference between mean returns as related to the standard deviation of each series.