Question

The three-month interest rate on yen is i_{¥}=1% per
annum; the three-month interest rate on euros is i_{€}=5.5%
per annum. Which one of the following statements is correct?

Select one:

a. Based on the Uncovered Interest Rate Parity, the euro is expected to appreciate by 4.5% against yen next three months.

b. In a carry trade between euro and yen for three months, the profit will be ¥0.0315(for each yen borrowed) if the euro has appreciated 2% against yen in the three months.

c. According to the asset market approach, the current spot rate
should be ¥1.293/€ if the expected three-month spot rate
S_{3}(¥/€)=1.250.

d. The euro is going to appreciate in the next year.

e. To start a carry trade, a trader can short the euro against yen in three-month forward contracts.

Answer #1

In this scenario,the interest rate on euro is higher than the interest rate on yen so according to the uncovered interest rate parity, next three months the euro is going to depreciate against and so it is better to go short on Euro.

according to the uncovered interest rate parity the difference in the nominal interest rate will be equalised by the difference in the currency exchange rate.

So the correct answer will be option (e)to start a carry trade, trader can short Euro against Yen in 3 month forward contract.

all the other options are false because they are mostly advocating for appreciation of Euro.

The three-month
interest rate on yen is i¥=1% per annum; the three-month
interest rate on euros is i€=5.5% per annum. Which one
of the following statements is correct?
Select one:
a. Based on the Uncovered Interest Rate Parity, the euro is
expected to appreciate by 4.5% against yen next three months.
b. To start a carry trade, a trader can short the euro against
yen in three-month forward contracts.
c. According to the asset market approach, the current spot rate...

6)The three-month interest rate on yen is i¥=1% per annum; the
three-month interest rate on euros is i€=5.5% per annum. Which one
of the following statements is correct?
Select one:
a. In a carry trade between euro and yen for three months, the
profit will be ¥0.0315(for each yen borrowed) if the euro has
appreciated 2% against yen in the three months.
b. Based on the Uncovered Interest Rate Parity, the euro is
expected to appreciate by 4.5% against yen...

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...

Currently, interest rate is 2 percent per annum in the U.S. and
6 percent per annum in the euro zone, respectively. The spot
exchange rate is $1.25 = €1.00, and the one-year forward exchange
rate is $1.20 = €1.00. As informed traders recognize the deviation
from IRP and start carrying out covered interest arbitrage
transactions to earn a certain profit, how will IRP be restored as
a result?
A. Interest rate in the euro zone will rise; interest rate in...

According to uncovered interest rate parity, if the interest
rate in Japan decreases, all else equal, ________.
Select one:
a. Japanese yen is expected to depreciate against U.S dollar
b. U.S. dollar is expected to depreciate against Japanese
yen
c. the exchange rate of Japanese yen against U.S. dollar remains
unchanged
d. U.S. dollar is expected to appreciate against Japanese
yen
If U.S. residents increased their imports of cheese from
Switzerland, the Swiss central bank would need to ________ in...

Departures from uncovered interest parity (for example in the
Yen-USD market) mean that there are riskless profits from the carry
trade and that the forward rate is a biased predictor of the future
spot exchange rate. True, False or Uncertain?

Initially the US interest rate is 9% per year and the Swiss
interest rate is 5% per year, The current spot rate is $0.5/SF and
in the next 90 days it is expected to be about $0.505/SF. The franc
is expected to appreciate by 1% in the next 90 days so the annual
rate of expected increase is 4%. Assume uncovered interest parity
holds at these rates. Describe what happens to the spot rate if US
interest rate changes from...

Q2. (5 pts total). Suppose the spot rate is Yen 90/$, the
three-month forward rate Yen 88/$ and the three-month yen interest
rate 2.5%. (Show your calculations!)
a) (5 pts). What is the implied three-month US$ interest
rate?

You have the following market data.
Spot price for the Euro is $1.174 per Euro.
Three-month forward price is $1.06 per Euro.
U.S. dollar LIBOR for three months is a continously compounded
rate of 1.26% per annum.
Euro LIBOR for three months is a continuously compounded rate
of 3.98% per annum.
Underlying asset for this contract (i.e., the quantity of Euros
to be delivered in three months) is 100,000 Euros.
What is the total net profit if you execute the...

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.

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 1 minute ago

asked 3 minutes ago

asked 5 minutes ago

asked 28 minutes ago

asked 32 minutes ago

asked 32 minutes ago

asked 39 minutes ago

asked 39 minutes ago

asked 40 minutes ago

asked 41 minutes ago

asked 41 minutes ago

asked 1 hour ago