Reference no: EM131386319
Assignment
All interest and inflation rates are stated as annual rates.
Purchasing power parity
1. If the spot market exchange rate for the British pound is 1.2478, the expected inflation rate for the UK for the next year is 2.50% and the expected inflation rate for the US for the next year is 2.30%, what is the expected exchange rate for the British pound in one year?
2. If the spot market exchange rate for the Indian rupee is 67.817, the expected inflation rate for India for the next six months is 5.15% and the expected inflation rate for the US for the six months is 2.30%, what is the expected exchange rate for the Indian rupee in one year?
International Fisher effect
3. If the spot market exchange rate for the Brazilian real is 3.1248, the 1-year interest rate in Brazil is 12.90% and the 1-year interest rate in the US for the next year is 0.75%, what is the expected exchange rate for the Brazilian real in one year?
4. If the spot market exchange rate for the euro is 1.0689, the 3-month Euro Central Bank interest rate is 0.25% and the 3-month interest rate on US Treasury debt is 0.47%, what is the expected exchange rate for the euro in three months?
Unbiased forward rate (forward expectation parity)
5. If the spot market exchange rate for the Australian dollar is 0.7550 and the 6-month forward rate is 0.7520, what is the expected exchange rate for the Australian dollar in six months?
6. If the spot market exchange rate for the Japanese yen is 113.75 and the 1-year forward rate is 112.75, what is the expected exchange rate for the Japanese yen dollar in one months?
Interest rate parity
7. If the spot market exchange rate for the Kenyan shilling is 7.7596, the 6-month interest rate in Kenya is 10% and the 6-month interest rate in the US is 0.50%, what must the 6-month forward rate for the Kenyan shilling be to avoid arbitrage?
8. If the spot market exchange rate for the New Zealand dollar is 0.7280, the 1-year interest rate in New Zealand is 1.87% and the 1-year interest rate in the US for the next year is 0.75%, what must the 1-year forward rate for the New Zealand dollar be to avoid arbitrage?
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