The interest rate parity relation

Reference no: EM13766813

The interest rate parity relation can be represented by the following equation:

1 + i = (1 + i*) E/E^e

where i is the domestic interest rate, i* the foreign interest rate, E and E^e are the actual and expected exchange rate, respectively. Referring to this equation as needed, explain why investors pay attention to the exchange rate when making investments across countries.

Reference no: EM13766813

Questions Cloud

Payment-interest-principal and loan balance : With a 30 year 9% loan of $200,000, how much of your yearly payment would be interest and how much would be principal for the first 4 years? Calculate the following : payment, interest, principal, loan balance(E.O.Y.), for each year.

What is the expected return on the stock : A stock, currently trading at $50, expects to pay a $4.50 dividend this year. The dividends and stock price has been growing at 8% for 10 years. What is the expected return on the stock this year?

Knowledge of strategy formation : Based on your knowledge of strategy formation, how do the economic concepts in this course affect strategic planning?

Very flexible in your repayment plan : You borrowed $20,000 today from your uncle to finance your college education. Your uncle is very flexible in your repayment plan, but he will charge an 8% interest compounded annually for any unpaid balance. Suppose your payment plan is as follows

The interest rate parity relation : where i is the domestic interest rate, i* the foreign interest rate, E and Ee are the actual and expected exchange rate, respectively. Referring to this equation as needed, explain why investors pay attention to the exchange rate when making investme..

Determine the range of annual cash inflows : Sensitivity analysis James Secretarial Services is considering the purchase of one of two new personal computers, P and Q. Both are expected to provide benefits over a 10-year period, and each has a required investment of $3,000.

The calculation of incremental free cash flows : The calculation of incremental free cash flows over a project's life should include

The policy maker and the public : 1. Monetary policy can be conceived as a "game" between the policy maker and the public. Explain. 2. What mechanisms can be used to "keep the policy maker honest" with regard to policy announcements vs. actual policy implementation?

Banking regulations tend to encourage financial innovation : Why do banking regulations tend to encourage financial innovation? How have money market funds, junk bonds, commercial paper, and securitization tended to reduce the profitability of traditional bank lending?

User Account

All Pages