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Spot exchange rate of the canadian dollar

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Reference no: EM133114000

Question 

(a) Assume that the spot exchange rate of the British pound is $ 2.00, How will this spot rate adjust according to PPP if the UK experiences an inflation rate of 9% while the US experiences an inflation rate of 5%?

(b) Assume that the spot exchange rate of the Canadian dollar is €0.40. One- year interest rate is 12% in the UK and 8% in Canada.

Required:

What will the spot be in one year according to the IFE? (You may use the approximate formula for to answer this question)

(c) Assume that the annual interest rates in the UK are 6%, while interest rates in Uganda are 14%.

  1. According to IRP. What should the forward rate premium or discount of the Uganda Shilling with respect to the pound be? 
  2. If the Uganda Shilling's spot rate is £0.0064 what should the one-year forward rate of the Uganda Shilling be?

Reference no: EM133114000

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