The USA interest rate is 5% and the nominal exchange rate between the euro and the US dollar, E€/$, is 0.94. As the Ukraine crisis continues and the price of energy is expected to increase further, the financial markets expect a 14% depreciation of the euro in the following year. How much (euro) will a European investor earn, if today she invests 1 euro in a one-year USA bond?
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The USA interest rate is 5% and the nominal exchange rate between the euro and the US dollar, E€/$, is 0.94. As the Ukraine crisis continues and the price of energy is expected to increase further, the financial markets expect a 14%
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- The Central American country of Belize is one of approximately 14 Caribbean community countries that pegs its currency to the U.S. dollar. The pegged rate is 2 Belize dollars equal 1 U.S. dollar (2 BZD = 1 USD or 1 BZD = 0.50 USD). This is illustrated in the figure below. Exchange Rate (USD BZD) 2.00 1.00 0.50 D Quantity of Belize dollars traded per day How will the actions of speculators affect this market? O The Belize dollar supply curve will shift to the right and the Belize dollar demand curve will shift to the left. O The Belize dollar supply curve and the Belize dollar demand curve will shift to the right. O The Belize dollar supply curve will shift to the left and the Belize dollar demand curve shift to the right. The Belize dollar supply curve and the Belize dollar demand curve will shift to the left.The UK inflation rate is predicted to be 10% and the Eurozone inflation rate is predicted to be 6%. The current euro per pound exchange rate is €1.20/£1. What is the forecast €/£ rate in one year’s time according to Purchasing Power Parity? Is the euro expected to appreciate or depreciate and by approximately what percentage? (Show your working in full) (ii) The euro per pound spot rate is €1.20/£1. The UK interest rate is 4% and the Eurozone interest rate is 6%. Calculate the six-month forward rate using the covered interest parity formula. State if the pound is at a forward discount or at a forward premium. (Show your working in full)You are planning to invest 3 million euros for one year, and you have two alternatives: a US asset with interest rate 1.9%, and a French asset with interest rate 0.9%. Note also that today's euro nominal exchange rate per $ equals 0.920. a) If you expect annual depreciation of the euro by 4%, what will be your choice?
- Sri Lanka Rupee (SLRs) fluctuates in recent times due to its economic situation. The Sri Lanka Rs trading in December 2020 at SLRs 181.5/$. The Sri Lanka Rs. is expected to appreciate by 7% in 2021. a) What will be the exchange rate after appreciation of the Sri Lankan currency? b) What will be the percentage change of Sri Lanka currency if, on March 31, 2021, it is trading at SL Rs 179.9/$?Suppose the U.S. dollar interest rate is 3%, while the interest rate in the United Kingdom is 6%. Your friend thinks he can convert his dollars, invest in the United Kingdom and convert his pounds back into dollars at the end of a year, allowing him to make a higher return than investing in dollars. Assuming uncovered interest parity (UIP) holds, explain why he is incorrect.Assume Turkish lira (TL) is expected to depreciate by 10% over the next year against US dollar. If the Turkish interest rate is15%, what would be the US interest rate that can make a Turkish investor to be willing to buy US securities today? Assume capital is perfectly mobile between Turkey and US.