What is the expected rate of appreciation and depreciation

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Reference no: EM131589694

If the rate of inflation in the UK is 8% and the rate of inflation in the US is 4%, given a spot rate of USD 1.46=1 GBP, what is the expected forward rate one year hence? What is the expected rate of appreciation/depreciation for the USD?

Suppose a manufacturer of tractors secures a sale to a Chinese company of 240 million USD for delivery in 45 days. If market interest in China is 6.125% and market interest in the US is 3.2%, spot rate is RMB 6.831=1USD, calculate the expected forward rate and rate of appreciation/depreciation at the time of delivery. Show how the manufacturer can use a forward market hedge to lock in his/her profit.

Explain the factors that determine foreign exchange rates and their link to financial markets. In terms of balancing mechanisms, how does covered interest arbitrage ensure market equilibrium?

Reference no: EM131589694

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