Question

In: Finance

Current one-year rates are 3% in Switzerland and 5% in USA. The current spot rate is...

Current one-year rates are 3% in Switzerland and 5% in USA. The current spot rate is 1.12 Sf/$.

  1. What is the expected (in one year) future FX rate according to Interest Rate Parity? Use exact equation.
  2. What is the synthetic one-year forward rate?
  3. What is the market one-year forward rate?
  4. How much is the one-year forward premium on the Swiss Franc?

Solutions

Expert Solution

Answer is as follows:


Related Solutions

Assuming inflation rates in the U.S. and Switzerland are 5% and 3% respectively. Spot exchange rate...
Assuming inflation rates in the U.S. and Switzerland are 5% and 3% respectively. Spot exchange rate of Swiss francs is US$1.05. Purchasing Power Parity (PPP) and international Fisher effect (IFE) are held in this case. Required: (a) Calculate the expected percentage change of spot exchange rate of Swiss francs. (b) Calculate the U.S. interest rate if interest rate in Switzerland is 3.5%. (c) “If PPP is held, IFE is held too.” Explain whether this statement is correct.
If the current one year spot rate is 1.45% and the current two year spot rate...
If the current one year spot rate is 1.45% and the current two year spot rate is 1.78%, what is the one year forward rate at the end of one year, assuming semi-annual compounding of spot rates and forward rates?
Suppose that the current one-year rate (one-year spot rate) andexpected one-year T-bill rates over the...
Suppose that the current one-year rate (one-year spot rate) and expected one-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows: 1R1 = 0.4%, E(2r 1) = 1.4%, E(3r1) = 1.9%, E(4r1) = 2.25% Using the unbiased expectations theory, calculate the current (long-term) rates for one-, two-, three-, and four-year-maturity Treasury securities. (Round your answers to 3 decimal places. (e.g., 32.161))
Suppose that the current one-year rate (one-year spot rate) and expected one-year T-bill rates over the...
Suppose that the current one-year rate (one-year spot rate) and expected one-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows: 1R1 = 0.5%, E(2r 1) = 1.5%, E(3r1) = 9.9%, E(4r1) = 10.25% Using the unbiased expectations theory, calculate the current (long-term) rates for one-, two-, three-, and four-year maturity Treasury securities. (Round your answers to 3 decimal places. (e.g., 32.161)) Current (Long-Term) Rates   One-year %     Two-year %     Three-year %     Four-year...
1a. Suppose that the current one-year rate (one-year spot rate) and expected one-year T-bill rates over...
1a. Suppose that the current one-year rate (one-year spot rate) and expected one-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows: 1R1 = 0.3%, E(2r 1) = 1.3%, E(3r1) = 10.4%, E(4r1) = 10.75% Using the unbiased expectations theory, calculate the current (long-term) rates for one-, two-, three-, and four-year-maturity Treasury securities. (Round your answers to 3 decimal places. (e.g., 32.161)) 1b.The Wall Street Journal reports that the rate on four-year...
Current spot exchange rates (2020) EUR/USA CNY/USA JPY/USA 1.1848 0.1463 0.9418 Current interest rate (2020) EUR...
Current spot exchange rates (2020) EUR/USA CNY/USA JPY/USA 1.1848 0.1463 0.9418 Current interest rate (2020) EUR CNY JPY USA 0% 3.85% -0.10% 0.26% Inflation rate forecasts (2020) EUR CNY JPY USA 0.27% 3% 0.80% 2.36% IFE: 1 year forecast EUR/USA CNY/USA JPY/USA Exchange Rate PPP: 1 year forecast EUR/USA CNY/USA JPY/USA Growth rate Growth + 1 Exchange rate 1 year forward rate EUR/USA CNY/USA JPY/USA Bid Ask Mid point Expected change in the USA value EUR/USA CNY/USA JPY/USA IFE PPP...
Interest rates are 10% and 4% per annum in Canada and Switzerland, respectively. The current spot...
Interest rates are 10% and 4% per annum in Canada and Switzerland, respectively. The current spot exchange rate ($/SFr) is 0.3864. What is the appropriate one-year forward rate if interest rate parity holds? Is there an arbitrage opportunity if the 90-day Swiss francs are quoted at $0.3902/SFr? Clearly specify the steps you will take to lock in the arbitrage profit. Validate your arguments with the given data.
Spot rate USD/AUD 1.56. Assume annual interest rate is 3% in USA and 5% in Australi...
Spot rate USD/AUD 1.56. Assume annual interest rate is 3% in USA and 5% in Australi What should be the one-year forward rate USD/AUD per interest rate parity condition? Show that there is no arbitrage opportunity based on the forward rate that you computed. Compute arbitrage profit if one-year forward rate is USD/AUD 1.60. Pick any initial borrowing amount of your choice.
EOC 2.15 Suppose we observe the following rates: One-year spot rate = 10% Two-year spot rate...
EOC 2.15 Suppose we observe the following rates: One-year spot rate = 10% Two-year spot rate = 14% Expected one-year rate one year from now = 18% If the liquidity premium theory of the term structure of interest rates holds, what is the liquidity premium for year 2?
The 1-year spot rate is 8%, the 2-year spot-rate is 7%, and the 3-year spot rate...
The 1-year spot rate is 8%, the 2-year spot-rate is 7%, and the 3-year spot rate is 6%. What is the YTM on a 3-year, 1% annual coupon bond?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT