Question

In: Finance

The current spot rate between the euro and dollar is €1.1017/$. The annual inflation rate in...

The current spot rate between the euro and dollar is €1.1017/$. The annual inflation rate in the U.S is expected to be 1.99 percent and the annual inflation rate in euroland is expected to be 2.83 percent. Assuming relative purchasing power parity holds, what will the exchange rate be in two years?

Solutions

Expert Solution


Related Solutions

Suppose that the current spot exchange rate between the US dollar and NZ dollar is $.70/NZ$...
Suppose that the current spot exchange rate between the US dollar and NZ dollar is $.70/NZ$ and the 1-year forward rate is $.695. The one year interest rates are 1% for the USD and 3% for the NZ$. What is the payoff if a US MNC conducts covered interest arbitrage, for a $1,000,000 starting amount? 1,022,643 $1,010,000 $985,857 $1,000,540
Use the following information on the U.S. dollar value of the euro. Spot Rate Forward Rate...
Use the following information on the U.S. dollar value of the euro. Spot Rate Forward Rate for April 30, 2021 Delivery October 30, 2020 $ 1.230 $ 1.240 November 1, 2020 1.248 1.245 December 31, 2020 1.260 1.265 April 30, 2021 1.270 1.270 On October 30, 2020, a U.S. company receives a purchase order from a customer in Spain. Under the sale terms, the customer will pay the company €100,000 on April 30. On October 30, the U.S. company also...
Suppose that the current spot rate between dollar and pound is 1.5 $/£, and the expected future spot rate in 12 months is 1.48 $/£.
Suppose that the current spot rate between dollar and pound is 1.5 $/£, and the expected future spot rate in 12 months is 1.48 $/£. If the 1-year interest rate of U.K. treasury bonds is 8%, then the net rate of return on the U.K. bond investment in terms of dollar (%) is roughly _________, according to the uncovered interest rate parity approximation.Select one:a. 9.35%b. 8%c. 6.67%d. 3.35%If Peru inflation is 6 % while the U.K. inflation is 2 %...
A spot exchange rate for the Euro / U.S. Dollar is 363.00 £/$.What’s the 1-month...
A spot exchange rate for the Euro / U.S. Dollar is 363.00 £/$. What’s the 1-month forward mid-rate ( £/$) when the quotes are an ask of -325? bid of -125?
Purchasing Power Parity If the current spot rate between the U.S. dollar and the Swedish krona...
Purchasing Power Parity If the current spot rate between the U.S. dollar and the Swedish krona was $1 = 7.6123 krona, and if the inflation rate in the United States was 5.7 percent and in Sweden it was 2.7 percent, then what would be the expected spot rate in one year? (Round your answer to 4 decimal places.) Purchasing Power Parity If the current spot rate between the U.S. dollar and the Swedish krona was $1 = 7.6423 krona, and...
The current spot exchange rate between the US Dollar and the Yen is 113 (i.e., $1...
The current spot exchange rate between the US Dollar and the Yen is 113 (i.e., $1 buys 113 Yen). What is the “fair price” for a 12month forward contract (dollars for yen) if the US borrowing cost is 5% per annum and the investment return on a Yen denominated Certificate of Deposit is 1.0%?  Given the above information, would you purchase a forward contract offered at 105 Yen to the Dollar from your dealer or create a “synthetic forward contract” on...
. Assume the following information: Current spot rate of Australian dollar = $.67 Forecasted spot rate...
. Assume the following information: Current spot rate of Australian dollar = $.67 Forecasted spot rate of Australian dollar 1 year from now = $.68 1-year forward rate of Australian dollar = $.93 Annual interest rate for Australian dollar deposit = 4% Annual interest rate in the U.S. = 2% What is your percentage return from covered interest arbitrage with $550,000 for one year?
The Euro -Yen dollar spot rate is £$0.89/¥$. When the45-day forward exchange rate is £$0.90/¥$...
The Euro -Yen dollar spot rate is £$0.89/¥$. When the 45-day forward exchange rate is £$0.90/¥$ then the Euro forward dollar is selling at discount or premium of _________%
1 A) The 90-day forward rate for the euro is $1.08, while the current spot rate...
1 A) The 90-day forward rate for the euro is $1.08, while the current spot rate of the euro is $1.05. What is the annualized forward premium or discount of the euro? 11.4% discount 11.4% Premium 7.6% premium 7.6% discount 1 B) Assume that a speculator purchases a put option on British pounds (with a strike price of $1.50) for $.05 per unit. A pound option represents 31,250 units. Assume that at the time of the purchase, the spot rate...
3. Assume the following information: Current spot rate of Australian dollar = $.86 Forecasted spot rate...
3. Assume the following information: Current spot rate of Australian dollar = $.86 Forecasted spot rate of Australian dollar 1 year from now = $.88 1-year forward rate of Australian dollar = $.93 Annual interest rate for Australian dollar deposit = 4% Annual interest rate in the U.S. = 2% What is your percentage return from covered interest arbitrage with $650,000?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT