What are the one-year-ahead forward exchange rates

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BUAD - Assignment

1. Based on the risk-free interest rate data presented below, which of these six currencies will appreciate against the USD over the next year and which of these six currencies will depreciate against the USD over the next year?

Country (Currency)	One-Year Treasury Bill Rate	Current Exchange Rate
Japan (JPY)	0.10%	.01 USDs per JPY
S. Korea (KRW)	2.50%	.05 USDs per KRW
China (CNY)	6%	.20 USDs per CNY
U.K (GBP)	3.50%	2 USDs per GBP
France (EUR)	-.02%	1 USD per EUR
Mexico (1VDCN)	7%	.10 USDs per M)Cts1
USA (USD)	1%	-

What are the one-year-ahead forward exchange rates for the JPY-USD, KRW-USD, CNY-USD, GBP-USD, EUR-USD and MXN-USD exchange rates (in USDs per unit of the foreign currency)?

2. Country A's government has declared that it will peg its exchange rate to the EUR at parity (that is, one unit of country A's currency will equal one EUR). Given that country A also wants to maintain an open capital market with unfettered capital flows, what conditions must country A meet in order to maintain a credible fixed exchange rate policy?

Reference no: EM131274026

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