Depreciation for a currency that appreciates

Assignment Help Basic Statistics

Reference no: EM131042632

The accuracy from forecasting with the spot rate will be better. The forward rate is higher than the spot rate (it has a premium) when the interest rate is lower. So if the forward rate is used as a forecast, it would suggest that a currency with the lower interest rate will appreciate (in accordance with the international Fisher effect). However, since money is assumed to flow where interest rates are higher, this implies that the spot rate will rise when a currency has a relatively high interest rate.

This relationship is in contrast to the IFE. Thus, a forward rate will suggest depreciation of the currencies that should appreciate (and vice versa) based on the information in the question. The spot rate as a forecast reflects a forecast of no change in the exchange rate. The forecast of no change in a currency value (when the spot rate is used as the forecast) is better than a forecast of depreciation for a currency that appreciates. The spot rate forecast results in a smaller mean absolute forecast error

Reference no: EM131042632

Questions Cloud

Derive the expression for the friction torque in : "[Derive the expression for the friction torque in ?at collar bearing considering uniform pressure and uniform wear]".

Determining the probability of selecting a sample : The average age of students walking for commencement at UVU is 27.5, with a standard deviation of 7.2. What is the probability of selecting a sample of 50 graduates that had an average age of 30 or less?

Is marissa mayer ceo of yahoo and a leader : What are some leadership styles that you have observed at your workplace? Which do you hope to emulate?

Determine the rates of energy transfers by mass into : Determine the rates of energy transfers by mass into and out of the compressor. Assume the kinetic and potential energies to be negligible.

Depreciation for a currency that appreciates : The accuracy from forecasting with the spot rate will be better. The forward rate is higher than the spot rate (it has a premium) when the interest rate is lower.

Students eligible to serve on the committee : In how many ways can a committee consisting of 2 faculty members and 4 students be formed if there are 12 faculty members and 14 students eligible to serve on the committee.

Report for the attention of the ceo of the organisation : MGMT6014 Organisational Best Practice.

Determine the diffusion rate of water from the floor : Determine the diffusion rate of water from the floor in still air in a room at 30°C. The air is still up to a height of 2 m and the RH at this height is 30%.

Variance of the two-currency portfolio effective : Cleveland, Inc., plans to finance its U.S. operations by repeatedly borrowing two currencies with low interest rates whose exchange rate movements are highly correlated. Will the variance of the two-currency portfolio's effective

User Account

All Pages