Reference no: EM132115003
The currency of Denmark is the Danish Kroner. or Krone, and we use DKK for it below:
Spot rate DKK 6.8911/$
12 month forward rate DKK 6.9866/$
Inflation in US2.0 percent/year
Inflation in Denmark 4.4 percent/year
Interest rate in US 3.2 PERCENT/YEAR
Interest rate in Denmark 5.5 percent/year
Based on the above information, answer the following questions.
Please note:
Use the accurate approach in forecasting in your computations
Carry your accuracy to at least four digits beyond the decimal points
Do not round the numbers in the internal steps of your computations. If you have to then at least keep four digits beyond the decimal points.
Do not convert amounts into millions or thoursands
1) Forecast the outright value of DKK for next year on the basis of the relative purchasing power parity
2) Forecast the outright value of DKK for next year on the basis of the international fisher effect
3) Forecast the outright value of DKK for next year on the basis of the unbiased theory of the forward rates