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 oneyear 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 oneyear 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 noarbitrage 1year 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 noarbitrage 1year 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 oneyear 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 1year 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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