Question

1. A Singaporean citizen observes the one year interest rate for identical investments in the UK...

1.

A Singaporean citizen observes the one year interest rate for identical investments in the UK and Singapore are 6% and 7%, respectively. The current quotes for pounds and Singapore dollars are 1£ =$1.50 and S$=$.77. What should be the value of pounds in terms of Singapore dollars at the end of the year according to the international Fisher effect? Round intermediate steps to four decimals.

1.9299

.5086

1.9664

.5182

2.

Use the following information to answer the next two questions.

A Japanese investor notices the expected one year inflation rate in Japan and Mexico is 5% and 7%, respectively. The current spot rates for yen and pesos are as follows:

$.15/Mex$, ¥111.11/$

What should be the value of pesos in terms of yen at the end of the year according to relative PPP?

16.9842

16.3548

.0611

.0589

3. Use the information in #2

If the spot rate is ¥16.5/Mex$, the yen has depreciated in real terms according to relative PPP.

True

False

Homework Answers

Answer #1

1. after one year, uk= 1.5*1.06 = $1.59/ pound

after one year, singapore= 0.77*1.07 = $0.8239/ S$

POUND/$= 0.8239/1.59 = 0.5182 (AFTER ONE YEAR) i.e. option 4

2. japan, yen/$= 111.11/1.05 = 105.8190 (after taking inflation into account)

mexico= peso/$= 1/0.15 = 6.67, 6.67/1.07 = 6.2305 (after taking inflation into account)

therefore, peso/yen= 6.2305/ 105.8190= 0.0589 (option4)

3. spot rate=byen 16.5/mex$

after inflation, 1/0.0589= yen16.984 / $ . therefore, yen has depreciated in real terms, true

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
1)i) Use the following information to answer the next two questions. A Japanese investor notices the...
1)i) Use the following information to answer the next two questions. A Japanese investor notices the expected one year inflation rate in Japan and Mexico is 7% and 5%, respectively. The current spot rates for yen and pesos are as follows: $.14/MP, JY100/$What should be the value of pesos in terms of yen at the end of the year according to relative PPP? a).0728 b)13.3783 c).0701 d)14.266 ii)Suppose the spot rate at the end of the year is MP.065/JY. Has...
Use the following to answer the next two questions. Assume a British investor observes the following...
Use the following to answer the next two questions. Assume a British investor observes the following situation:      Current spot rate: £1.10/$ UK 1 year interest rate: .10 US 1 year interest rate: .13 What should be the percentage change in direct quotes according to IFE? Round intermediate steps and your final answer to four decimals and enter your response in decimal format (EX: .XXXX) (Please solve without excel and type in decimal formate .xxxx) 2)What should be the future...
assume that the one year interest rate in the united states is 7 percent and in...
assume that the one year interest rate in the united states is 7 percent and in the united kingdom 5 percent according to the international fisher effect the British pounds spot exchange rate should ____ by about _____ over the year.
1. Use the following information to answer the next two questions. Investors expect inflation rates over...
1. Use the following information to answer the next two questions. Investors expect inflation rates over the next twelve months in the US and Japan to be 8% and3%, respectively.  The current exchange rates for the two currencies are as follows: C$.007/¥,   C$1.02/$ Suppose that twelve months from now, the exchange rate between US dollars and yen is $.0071/¥.  According to relative PPP, what be the impact of this new exchange rate on the USbalance of trade?  (Assume the US is the home country...
The spot exchange rate is currently $1.85 US per 1 British pound. One year interest rate...
The spot exchange rate is currently $1.85 US per 1 British pound. One year interest rate is 4% in the US and 3% in the UK. A US bank is long a futures contract to buy 1,000,000 pounds for $1.8 million in one year. What is the current present value of the futures contract to the bank in US$?
Current spot rate of SF = $0.6543; 1-year interest rate in the U.S. = 7.5%; 1-year...
Current spot rate of SF = $0.6543; 1-year interest rate in the U.S. = 7.5%; 1-year interest rate in the Switzerland = 3.5% If one year later, the spot rate for SF turns out to be $0.6625, according to IFE, would SF be overvalued or undervalued in real terms? a. Overvalued b. Undervalued calculation and explanation!!!
Assume the one-year interest rate is 12% on British pounds and 9% on U.S. dollars. If...
Assume the one-year interest rate is 12% on British pounds and 9% on U.S. dollars. If the current exchange rate of the pound is $1.63, what is the expected future spot in one year? Suppose a change in expectations causes the expected future spot rate to decline to $1.52. What should happen to the U.S. interest rate?
Bank USA recently purchased $10.9 million worth of euro-denominated one-year CDs that pay 10 percent interest...
Bank USA recently purchased $10.9 million worth of euro-denominated one-year CDs that pay 10 percent interest annually. The current spot rate of U.S. dollars for euros is $1.104/€1. a. Is Bank USA exposed to an appreciation or depreciation of the dollar relative to the euro? b. What will be the return on the one-year CD if the dollar appreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is...
Sun Bank USA has purchased a 16 million one-year Australian dollar loan that pays 12 percent...
Sun Bank USA has purchased a 16 million one-year Australian dollar loan that pays 12 percent interest annually. The spot rate of U.S. dollars for Australian dollars (AUD/USD) is $0.757/A$1. It has funded this loan by accepting a British pound (BP)–denominated deposit for the equivalent amount and maturity at an annual rate of 10 percent. The current spot rate of U.S. dollars for British pounds (GBP/USD) is $1.320/£1. (LG 9-5) What is the net interest income earned in dollars on...
Suppose that the current spot exchange rate is $1.2/£ and the 1-year forward exchange rate is...
Suppose that the current spot exchange rate is $1.2/£ and the 1-year forward exchange rate is $1.3/£. The U.S. 1-year interest rate is 5 percent and the U.K. 1-year interest rate is 6 percent. Assume that you can borrow up to $1.2M or £1M. a. Show how to realize a certain profit via covered interest arbitrage, assuming that you want to realize profit in terms of U.S. dollars. Also determine the size of your arbitrage profit in U.S. dollars.  Please show...