User Account

All Pages

Calculate the expected exchange rate

Assignment Help Macroeconomics
Reference no: EM133504359

Case: Consider the following price structure for government securities in Canada and the United States.

Assume that, in both cases, the government securities are one-year bonds, yielding the face value of the security in one year's time. The exchange rate E is 1 US dollar = 0.72 CAD dollar.

  Face value price
United States, one-year bond 10 000 $US 9615.38 $US
Canada, obligation à un an  10 000 $CAD 9433.96 $CAD

Question 1. Calculate the nominal interest rate for each bond

Question 2. Calculate the expected exchange rate for the following year, consistent with the uncoverede interest rate parity (UIRP)

Question 3. If the US dollar is expected to depreciate against the CAD, which security should you buy?

Question 4. Suppose you are a U.S. investor. You exchange US dollars against the CAD and buy Canadian bonds. In a year's time, it turns out that E is actually worth 1.11 (US$1 = CAD$1.11). What is the return in US dollars compared with the return if you had held US bonds?

Question 5. Are these differences in return in question 4. compatible with the UIRP? Justify your answer.

Reference no: EM133504359

Questions Cloud

Determine and represent the equilibrium simulated : Determine and represent the equilibrium simulated on the goods and services market and the financial market?
What have been some of the most impactful, relatable : What have been some of the most impactful, relatable, or interesting moments, scenes, chapters, and/or stories from Thi Bui's storytelling in The Best
Cultural competency is important and relevant to health : Cultural competency is important and relevant to health professions primarily because patients need to feel comfortable in receiving services
What is the real exchange rate between argentina and canada : suppose that a kilogram of beef costs 2.005 in Canada and 2,500 pesos in Argentina. What is the real exchange rate between Argentina and Canada
Calculate the expected exchange rate : Calculate the expected exchange rate for the following year, consistent with the uncoverede interest rate parity (UIRP)
What are the muscles in the pelvis that are responsible for : What are the muscles in the pelvis that are responsible for walking?
Will devalue against usd is this explanation accurate : However, the lower interest rates will make the country unattractive to investors. So, the currency will devalue against USD. Is this explanation accurate
Draw the foreign exchange market showing : Draw the foreign exchange market showing the yen-price for Indian rupees. Label the equilibrium exchange rate (e1), the equilibrium quantity
What is the purpose of the association areas of the brain : What gives the brain so much surface area, and why is this important? What is the difference between gray matter and white matter besides its color?

Reviews

Write a Review

Macroeconomics Questions & Answers

  What type of energy is due to the position of an object

What type of energy is due to the position of an object? Select the correct answer below:

  Database systems offer information sharing service

Consider the idealized cycle of health information in evidence-based medicine where database systems offer information sharing service for doctors, medical researchers, medical institutions, and patients.

  Identify three key fact about short-run economic fluctuation

Identify the three key facts about short-run economic fluctuations and how the economy in the short run differs from the economy in the long run.

  Describe riparian and prior appropriation

For each of the following concepts provide a definition, a complete explanation as to their significance, and a practical example.

  Describe the attributes of an effective strategist

Describe the attributes of an effective strategist. Explain how you would create and sell a strategic mission to stakeholders.

  Exchange rate and employment levels

Explain how monetary policy can influence an economy, including the exchange rate and employment levels.

  How increase in real gdp of south africa will affect demand

Japan and South Africa are major trading partners. Indicate and explain how an increase in real GDP of South Africa will affect the demand for the Japanese yen in the foreign exchange market

  Illustrate what will happen to the profit in the long run

Illustrate the average cost, marginal cost, and marginal revenue for a firm making a positive economic profit in a short run, perfectly competitive environment. Indicate the profit. Now illustrate what will happen to this profit in the long run.

  Excessive pay levels for ceos of large corporations

Do you think that the theory of human capital can be used to explain what seems like excessive pay levels for CEOs of large corporations?

  Why is the dollar not a hard asset

A New York Times column in the fall of 2009 reported that the value of the dollar was falling, in part, because “investors who had sought shelter in the American currency’s perceived stability

  Calculate the total mass in grams of all three gases

For the reaction SO2Cl2(g) ? SO2(g) + Cl2(g) Kp = 2.39 at 100°C.

  Illustrate what were some of the major contributing factors

Illustrate what were some of the major contributing factors and how did they combine to cause the recession. How were you affected by it.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd