Define the implications of the interest rate parity, Financial Management

Assignment Help:

Discuss the implications of the interest rate parity for the exchange rate determination.

Answer: Presume that the forward exchange rate is roughly an unbiased predictor of the future spot rate, IRP can be illustrated as:

          S = [(1 + I£)/(1 + I$)]E[St+1|It].

So the exchange rate is determined by the relative interest rates, and the supposed future spot rate, conditional on all the accessible information, It, as of the present time. So, one can say that expectation is self-fulfilling. As the information set will be constantly updated as news hit the market, the exchange rate will show a highly dynamic, random behavior.


Related Discussions:- Define the implications of the interest rate parity

Tax consideration affect cost of debt and cost of equity, How do tax consid...

How do tax considerations affect the cost of debt and the cost of equity? As interest on debt is tax deductible to the issuing firm, as much higher the tax rate the lower the aft

Step-up (step down) notes, These types of securities have more ...

These types of securities have more than one coupon rate and each subsequent coupon rate is higher (or lower) than the previous coupon rate. For

Weighted average cost of capital , I need report on Weighted Average Cost o...

I need report on Weighted Average Cost of Capital. Do you provide help in topic Weighted Average Cost of Capital? I need expert's assistance to solve my college assignment. Please

Relationship between financial decision making and risk , Discuss the relat...

Discuss the relationship between financial decision making and risk and return. Would all financial managers view risk-return tradeoffs similarly

Discuss the objectives of financial statements, Question: The Statement...

Question: The Statement of Principles for Financial Reporting sets out the principles that should underlie the preparation and presentation of general-purpose financial stateme

What are the financial management problems, What are the financial manageme...

What are the financial management problems Traditional approach was challenged was that the treatment was built too closely around episodic events, like incorporation, promotio

Determine the meaning of reportable segments, Determine the meaning of Repo...

Determine the meaning of Reportable segments Reportable  segments  are  operating  segments  or  aggregations  of  operating  segments  which meet specified criteria(core princ

Help with 4 questions, I need assistance with 4 questions. How do I know s...

I need assistance with 4 questions. How do I know someone can help me and have some idea of what it would cost before submitting the information? Also, how fast is the turnaround

Operating cycle, discuss the applicability operating cycle considering broi...

discuss the applicability operating cycle considering broilers in uganda?

Define a sunk cost, What is a sunk cost?  Is it relevant while evaluating a...

What is a sunk cost?  Is it relevant while evaluating a proposed capital budgeting project?  Explain. A sunk cost is a cash flow which has previously occurred, or that will take

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd