Question

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
Forward rate

Answer 1

ANS a PART ; CURRENT SPOT EXCHANGE RATE =TO Calculate the forwaed rate , multiply the spot rate by the ratio of interest rates .forward rate is equal to the spot rate multiply (1+foreign interest rate )/(1+domestic interst rate ).

b PART ; CURRENT INTEREST RATE ;Europen union 's exchange rate against USD averged 0.87 in july 2020.

c PART ;INFLATION RATE FORECAST ; It is the difference between the spot interest rate and the interest rate for the forward.

SECOND PART

If the current U.S DOLLAR deposit rate is 1% for spot and 1.5% in one year's time.

d PART; IFE 1 YEAR FORECAST ;The economic projections is seen to be contracting 8% in 2020 a slight improvement from its june forecast of an 8.7% plunge.

e PART ; EXCHANGE RATE ;The U.S are predicted to go up by 4% over the next year and thhe prices rises by 2%.

then,the inflation differential between America and Australia is

4% -2%=2%

PART SECOND

Therefore,the PPP approach would predict that the U.S Dollar willdepricate by about 2% to balance the price in these two countries.

(1+0.02) multiply (Us $0.90 per AUS $ 1)=US $0.918 per AUS $1.

f PART ; GROWTH RATE ; FOR EXAMPLE, if the current U.S Dollar deposit rate is 1 % for spot and 1.5% in one year's time ,the growth is the difference of 0.5%.

g PART BID ASK MID POINT  ;Spreads on U.S stocks have narrowed .stocks were quoted in fractions of 1/16 of a dollar of 6.25 cents.

part second

Bid -ask spreads represent a cost not always apparent to novoice investors.a biggercost for active traders who make numerous trades daily.

h PART; IFE PPP FORWARD RATE ;The expected future spot rate is calculated by multiplying the spot rate by a ratio for the foreign interest rate to the domestic interest rate ;1.5339 multiply (1.05/1.07)=1.5052.