Question

We know that the yen and the Swiss franc have a 100 yen/ sf 1 exchange rate, meaning one swiss franc buys 100 yen in the forward ER market. If the swiss franc has an interest rate of -.06 and the yen rate is -.02, what is the spot exchange rate for IPT (interest parity theory) to be attained ? Show everything in yen terms and franc terms. 2) If there is no equilibrium initially, will there be equilibrium eventually? If so, what will transpire? Be extremely thorough. Your answer should include covered interest arbitrage.

Answer #1

A.1)We know that the yen and the Swiss franc have a 100 yen/ SF
1 exchange rate, meaning one swiss franc buys 100 yen in the
forward ER market. If the Swiss franc has an interest rate of -.06
and the yen rate is -.02, what is the spot exchange rate for IPT
(interest parity theory) to be attained? Show everything in yen
terms and franc terms. 2) If there is no equilibrium initially,
will there be equilibrium eventually? If...

We know that the yen and the swiss franc have a 120yen/
sf 1 exchange rate, meaning one swiss franc buys 120 yen in the
spot ER market. If the swiss franc has an interest rate of .06 and
the yen rate is -.02, what is the forward exchange rate for IPT
(interest parity theory) to be attained? Show everything in yen
terms, i., e., how much yen one Swiss franc buys (yen is in the
numerator.) If there is...

1)We know that the yen and the swiss franc have a 120yen/ sf 1
exchange rate, meaning one swiss franc buys 120 yen in the spot ER
market. If the swiss franc has an interest rate of .06 and the yen
rate is -.02, what is the forward exchange rate for IPT (interest
parity theory) to be attained? Show everything in yen terms, i.,
e., how much yen one Swiss franc buys (yen is in the
numerator.)
2) If there...

The spot rate for the Swiss Franc is $1.0550/SF and the one-year
forward rate is $1.0650/SF. The expected one year interest rates
are 6% p.a. for the US and 4% p.a. for Switzerland. Using the above
rates, can you engage in a covered interest rate arbitrage as an
American investor? Use either $1,000,000 or SF 1,000,000 as the
notational amount. Show any profits in dollars.

One year ago, the spot exchange rate between Japanese yen and
Swiss franc was S_1Y/SFR = ¥160/SFr/ Today, the spot
rate is S_0 ^¥/Sfr = ¥155/SFr. Inflation during the year was p^¥ =
2 percent and p^SFr= 3 percent in Japan and Switzerland,
respectively.
a.) What was the percentage change in the nominal value of the
Swiss franc?
b.) One year ago, what nominal exchange rate would you have
predicted for today based on the difference in inflation rates?
c.)...

In early 2012, the spot exchange rate between the Swiss Franc
and U.S. dollar was 1.0404 ($ per franc). Interest rates in the
U.S. and Switzerland were 1.35% and 1.10% per annum, respectively,
with continuous compounding. The three-month forward exchange rate
was 1.0300 ($ per franc). What arbitrage strategy was possible? How
does your answer change if the exchange rate is 1.0500 ($ per
franc).

Suppose that the US dollar interest rate and the Swiss Franc
interest rate are the same, 5 percent per year, but that there is a
risk premium of 1 percent associated with holding Swiss Franc
rather than US dollars over the year. (a) What is the relationship
(in percentage terms) between the current equilibrium dollar/franc
exchange rate and its expected future level? (b) If the expected
future exchange rate is $1.12 per franc, what is the equilibrium
dollar/franc (spot) exchange...

Casper
Landsten-Thirty Days Later.
Casper Landsten once again has $1.05 million (or its Swiss franc
equivalent) to invest for three months. He now faces the following
rates. Should he enter into a covered interest arbitrage (CIA)
investment?
Arbitrage funds available
$
1,050,000
Spot exchange rate (SFr/$)
1.3394
3-month forward rate (SFr/$)
1.3283
U.S. Dollar annual interest rate
4.752
%
Swiss franc annual interest rate
3.625
%
The CIA profit potential is __ % (Round to 3 decimal places)

3) Suppose that the spot exchange rate S(¥/€) between the yen
and the euro is currently
¥110/€, the 1-year euro interest rate is 6% p.a., and the 1-year
yen interest rate is 3% p.a.
Which of the following statements is MOST likely to be true?
A. The high interest rate currency must sell at a forward premium
when priced in the low
interest rate currency to prevent covered interest arbitrage
Page 3 of 13
B. Real interest parity does not...

Assume that the 1 year forward exchange rate is 100 yen for 1 US
dollar. Interest rate in dollars is 1 percent with annual
compounding. Interest rate in yen is 0.3 percent with annual
compounding. What is the spot exchange rate. PLEASE SHOW FORMULA
AND CLEAR CALCULATION

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