Forecaste the exchange rate between the dollar and the euro

Reference no: EM13237893

Suppose that in the beginning of the year, the exchange rate between US-dollar and the euro is exactly 2 $/EURO. At that time, a one-year US treasury bill yield an interest rate of 5%, while a similar German treasury bill yield 3%. Inflation during the year is expected to be 3% in the USA and 2% in the euro area.

(a) Use purchasing power parity (PPP) to forecaste the exchange rate between the dollar and the euro at the end of the year.

(b) Use uncovered interest parity (UIP) to forecaste the exchange rate between the dollar and the euro at the end of the year.

(c) Use covered interest parity (CIP) to compute the one-year forward exchange rate between the dollar and the euro at the beginning of the year.

Reference no: EM13237893

Questions Cloud

Compute the melting point of ice under a pressure : Calculate the melting point of ice under a pressure of 50 bar. Asume that the density of ice under these conditions is approximately 0.92 g/cm^3 and that of liquid water is 1g/cm^3

Calculate future worth of each plan and future worth value : each having advantages which make it do method of choice under a given set of circumstances. The selection of one method from several for a given set of conditions is the topic of this case study. Three methods of financing are described in detail..

Define the energy of the electron in the hydrogen atom : The equation for the energy of the electron in the hydrogen atom is given in your text(s) as E= - 2.18 x 10^-18J x (1/n_f^2 - 1/n_i^2). However the actual equation

How many protons are in the ring : You have a pure (24-karat) gold ring with mass 17.0 g, how many protons are in the ring and what is their total positve charge

Forecaste the exchange rate between the dollar and the euro : Suppose that in the beginning of the year, the exchange rate between US-dollar and the euro is exactly 2 $/EURO. At that time, a one-year US treasury bill yield an interest rate of 5%, while a similar German treasury bill yield 3%.

Compute the enthalpy and entropy of fusion : The molar volume of the liquid at this temperature and pressure is 163.3 cm^3/mol. At 100 atm the melting temperature changes to 351.26K. Calculate the enthalpy and entropy of fusion of the solid.

How many seconds will the balloon be in the air : A water balloon slingshot launches its projectiles essentially from ground level at a speed of 25.0m/s, For how many seconds will the balloon be in the air

Will the economy grow or recede for the rest of 2011 nd 2012 : The interest rate is tied to the economy. Based on your opinion, will the economy grow or recede for the rest of 2011 and 2012 Will the pace of growth (or recession) fast or slow The current interest rate is very low.

Explain structures for all the aldol condensation products : Write structures for all the aldol condensation products you expect from the cross aldol condensation of 4-methyl benzaldehyde and 2-butanone(methyl ethyl ketone)

User Account

All Pages