Congratulations! The Europe Department of the International Monetary Fund has just hired you. Your first assignment...

Congratulations! The Europe Department of the International Monetary Fund has just hired you. Your first assignment is to determine whether the uncovered interest parity approximation holds for the US dollar/Bulgarian lev (BL) exchange rate. (Please show your calculations). Today’s dollar/lev spot exchange rate = $0.50 Today’s interest rate on US dollar deposits = 0% Today’s interest rate on Bulgarian lev deposits = 1% Your department estimates that the expected dollar/lev exchange rate in one year is = 0.495 dollars to buy one lev. Does uncovered interest parity hold in this case? Why/Why not? (Show your calculations)

Expert Solution

Spot $/lev exchange rate = $0.5 / lev

One year interest rate on dollars = 0%

One year interest rate on Bulgarian levs = 1%

Market expected spot rate in one year = $0.495 / lev

This is solved using uncovered interest rate parity formula:

market expected exchange rate = Spot rate * One year interest on dollars / One year interest on levs

= 0.5* (1+0%) / (1 + 1%)

= 0.5 * 1 / 1.01

Market expected exchange rate = $ 0.49505 / lev (By uncovered interest rate parity)

But Market expected spot rate in one year = $0.495 / lev

Uncovered interest parity hold in this case as the expected market spot rate by interest rate parity is eqaul to the market expected spot rate.

Rahul Sunny answered 2 years ago

Congratulations, you have been hired as an analyst at the Procter and Gamble Co. (PG). Your first...

Congratulations, you have been hired as an analyst at the Procter and Gamble Co. (PG). Your first assignment is to estimate the appropriate rate that a new 30-year bond would need in order to be issued competitively to the public. It is April 1, 2020 (ignore actual current market rates). PG just made a coupon payment (semi-annual) on its "8% 2045" bonds that mature on April 1, 2045. The bonds currently sell for 104 with a par value of 100. Kimberly-Clark Corp. (KMB) has...

Congratulations, you were just elected to the US Senate. Your first vote is on whether to...

Congratulations, you were just elected to the US Senate. Your first vote is on whether to repeal and replace Obamacare. Do you believe Obamacare should be repealed and replaced by Trumpcare? Why or why not?

Congratulations, you were just hired as a consultant to Coke Cola. They are planning on rolling...

Congratulations, you were just hired as a consultant to Coke Cola. They are planning on rolling out a new line of fruit based bottled water in your home country. They want you to research the externalities in your country in depth. They want you to look at Coke's domestic externalities and recommend adoptions which need to be made. They want you to identify potential markets within your country. Develop a customer profile. Finally they want you to identify channels of...

Congratulations! You have just been hired as a senior IT portfolio and project manager at a...

Congratulations! You have just been hired as a senior IT portfolio and project manager at a traditional large finance company. The company is looking to invest in new financial products and services. You are now in charge of all new strategic IT projects to enable and support these new products and services. In your team, you have many subject matter experts, analysts, product and project managers, either directly or indirectly working for you . (a) Describe all areas of the...

Who does the International Monetary Fund account to, and who benefits from the International Monetary Fund?...

Who does the International Monetary Fund account to, and who benefits from the International Monetary Fund? Please be thorough with your answer and include as many details as possible in your explanation.

Congratulations! You have just graduated from your University. Your first day on your new job involves...

Congratulations! You have just graduated from your University. Your first day on your new job involves a lot of paperwork including your decision to participate in the company 401K plan. First, should you participate? Second, describe the benefits of diversification if any including adding international stocks to your investment portfolio? You must include a full explanation to support your answer.

you were just hired as a researcher in an in an immunology lab. Your first task...

you were just hired as a researcher in an in an immunology lab. Your first task in the lab is to inject mice with a sufficient dose of live pneumococcus bacteria so it dies from the infection within a few days. You also heat-up (but not boil) some of the Pneumococcal bacteria to kill the cells and inject the heat-killed bacteria into the mice. These mice do not succumb to the infection and it will survive a subsequent injection of...

WHAT ARE THE MAJOR OBJECTIVES OF THE INTERNATIONAL MONETARY FUND

You have just been hired as a manager of ABC Company. Your first week on the...

You have just been hired as a manager of ABC Company. Your first week on the job you are asked by upper management to review payroll. You notice the company is not paying any taxes for its employee. You ask the payroll director why there are no taxes paid and he states that all of the workers are considered independent contractors. What would you do in this case?

You were just hired as an accountant for ABC Company. One of your first assignments is...

You were just hired as an accountant for ABC Company. One of your first assignments is to verify the fixed asset listing to ensure the assets listed are owned by the company, are physically located in the building, and are being depreciated appropriately. In the process of verifying the location of all the fixed assets on the listing, you could not help but notice there were significant fixed assets present in the company that were not on your list. You...

Question