BUSINESS

As of today, the spot exchange rate is €1.00 = $1.25 and the rates of inflation expected to prevail for the next year in the U.S. is 2% and 3% in the euro zone. What is the one-year forward rate that should prevail?

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· Question 2

3 out of 3 points

As of today, the spot exchange rate is €1.00 = $1.60 and the rates of inflation expected to prevail for the next year in the U.S. is 2% and 3% in the euro zone. What is the one-year forward rate that should prevail?

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· Question 3

0 out of 3 points

Suppose you observe a spot exchange rate of $1.50/€. If interest rates are 3% APR in the U.S. and 5% APR in the euro zone, what is the no-arbitrage 1-year forward rate?

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· Question 4

3 out of 3 points

Suppose you observe a spot exchange rate of $2.00/£. If interest rates are 5% APR in the U.S. and 2% APR in the U.K., what is the no-arbitrage 1-year forward rate?

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· Question 5

3 out of 3 points

Covered Interest Arbitrage (CIA) activities will result in

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· Question 6

3 out of 3 points

Researchers have found that the fundamental approach to exchange rate forecasting

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· Question 7

3 out of 3 points

Suppose that the annual interest rate is 5.0 percent in the United States and 3.5 percent in Germany, and that the spot exchange rate is $1.12/€ and the forward exchange rate, with one-year maturity, is $1.16/€. Assume that an arbitrager can borrow up to $1,000,000. If an astute trader finds an arbitrage, what is the net cash flow in one year?

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· Question 8

3 out of 3 points

The Fisher effect can be written for the United States as:

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· Question 9

3 out of 3 points

Forward parity states that

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· Question 10

3 out of 3 points

The Fisher effect states that

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· Question 11

3 out of 3 points

Consider a bank dealer who faces the following spot rates and interest rates. What should he set his 1-year forward bid price at?

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· Question 12

3 out of 3 points

A formal statement of IRP is

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· Question 13

3 out of 3 points

According to the technical approach, what matters in exchange rate determination is

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· Question 14

3 out of 3 points

If the annual inflation rate is 2.5 percent in the United States and 4 percent in the U.K., and the dollar appreciated against the pound by 1.5 percent, then the real exchange rate, assuming that PPP initially held, is _____.

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