Question

One year ago, the spot exchange rate between Japanese yen and
Swiss franc was S_1^{Y/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.) What was the percentage change in the real exchange rate, x_0 ?¥/SFr?^, during the year?

d.) What was the percentage change in the relative purchasing power of the franc?

e.) What was the percentage change in the relative purchasing power of the yen?

Answer #1

A ) SFRJYP= 160 (1 Year ago)

SFRJPY=155 (Today)

As can be seen SFR has depreciated against JPY. The % Change in SFR is (155/160)-1= -3.125%

B ) Since the inflation rate in Switzerland is higher than Japan. The SFR would have depreciated by 3-2=1% against the Yen.

So nominal exchange rate today: 160*0.99= 158.40

C ) Real Exchange Rate 1 Year Ago:

S (1+Inflation Rate in Japan)/ (1 + Inflation Rate in Switzerland)

=160(1+0.02)/ (1+0.03)

= 158.446

Real Exchange Rate Today:

=155(1+0.02)/ (1+0.03)

= 153.495

Therefore, % change in SFR: (153.495/158.446)-1= -3.125%

The interest rate for Swiss Franc is iSF=12% and for Japanese
yen is i¥=10%. The expected inflation rate in Switzerland for the
next year is 5%. According to the International Fisher Effect, the
expected inflation rate and real interest rate in Japan for next
year are respectively,
a. 2.0% and 5.0%
b. 2.1% and 4.1%
c. 3.5% and 7.0%
d. 3.1% and 6.7%
e. 7.0% and 7.0%

The interest rate for Swiss Franc is iSF=12% and for
Japanese yen is i¥=10%. The expected inflation rate in
Switzerland for the next year is 5%. According to the International
Fisher Effect, the expected inflation rate and real interest rate
in Japan for next year are respectively,
Select one:
a. 2.1% and 4.1%
b. 3.5% and 7.0%
c. 3.1% and 6.7%
d. 2.0% and 5.0%
e. 7.0% and 7.0%

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).

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?...

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...

The spot exchange rate between the dollar and Swiss franc is a
floating, or flexible, exchange rate. What are the effects of each
of the following 2 distinct scenarios on this exchange rate for
dollar? Hint: Franc/Dollar is the exchange rate in interest.
1-There is a large increase in Swiss demand for US exports as US
culture becomes more popular in Switzerland.
A-Dollar depreciates
B-Dollar appreciates
C-Indeterminate
D-Stay the same
2-There is a large increase in Swiss demand for investments...

The spot exchange rate between the dollar and the Swiss franc is
a floating, or flexible, What are the effects of each of the
following on this exchange rate? a.There is a large increase in
Swiss demand for US exports as US culture becomes more popular in
Switzerland. b.There is a large increase in Swiss demand for US
investments in US dollar‐denominated financial assets due to a
belief that the US economy are imporoving markedly. c. Political
uncertainties in Europe...

The one-year forward rate for the Swiss franc is SF1.1617/$. The
spot rate is SF1.1731/$. The interest rate on a risk-free asset in
Switzerland is 2.99 percent. If interest rate parity exists, what
is the one-year risk-free rate in the U.S.?
Multiple Choice
3.20%
1.99%
3.50%
3.75%
4.00%

Assume the spot exchange rate is 106.90 Japanese yen per U.S.
dollar. If the inflation rate in the U.S. is expected to be 2% and
the inflation rate in Japan is 1% for the next two years, then
the:
exchange rate will increase.
exchange rate will double.
dollar will appreciate relative to the yen.
dollar will become more valuable.
Yen will strengthen against the dollar.

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...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 3 minutes ago

asked 3 minutes ago

asked 4 minutes ago

asked 5 minutes ago

asked 8 minutes ago

asked 10 minutes ago

asked 10 minutes ago

asked 12 minutes ago

asked 13 minutes ago

asked 15 minutes ago

asked 18 minutes ago

asked 18 minutes ago