Question

B. 1) Countries Mali and South Africa have their interest rates to be 6% and 12%,...

B. 1) Countries Mali and South Africa have their interest rates to be 6% and 12%, respectively. If their currencies trade according to 50 CFA francs buy one rand in the spot market, what will their future spot rate be in the aforementioned context? 2) Define IFE and explain the fact of how it occurs. Is there any deviation from it?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

1) Calculation of future spot rate:

Given :  

Mali interest rate = 6%

South Africa(SA) interest rate = 12%

Spot Rate (SR) : 1 Rand = 50 CFA Francs

Formula:

Future Spot Rate = CFA Francs SR * (1+ Mali interest rate) / (1+ SA interest rate)

= 50 CFA Francs * (1+0.06) / (1+0.12)

= 47.32 CFA Francs

2) IFE :

  • The International Fisher Effect (IFE) states that differences in nominal interest rates between countries can be used to predict changes in exchange rates.
  • According to the IFE, countries with higher nominal interest rates experience higher rates of inflation, which will result in currency depreciation against other currencies.
  • In practice, evidence for the IFE is mixed and in recent years direct estimation of currency exchange movements from expected inflation is more common.
0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
) Countries Mali and South Africa have their interest rates to be 16% and 12 %,...
) Countries Mali and South Africa have their interest rates to be 16% and 12 %, respectively. If their currencies trade according to 50 CFA francs buy one rand in the spot market, what will their future spot rate be in the aforementioned context? 2) Define IFE and explain the fact of how it occurs. Is there any deviation from it?
1. a)Countries Australia and France have their interest rates to be 8% and 12 %, respectively....
1. a)Countries Australia and France have their interest rates to be 8% and 12 %, respectively. If their currencies trade according to 2 Australian $s buy one euro in the spot market, what will their future spot rate be in the aforementioned context? b) Define IFE and explain the fact of how it occurs. Is there any deviation from it?
Suppose 1-year interest rates are 11% in South Africa and 4% in the United States. The...
Suppose 1-year interest rates are 11% in South Africa and 4% in the United States. The current spot rate of the South African Rand (ZAR) is USD 0.12. Forward contracts on ZAR are available with a 7% discount. Question: Can a US-based investor successfully use Covered Interest Arbitrage in South Africa?
1. Exchange rates are equalized in different locations due to: a. arbitrage. b. government intervention in...
1. Exchange rates are equalized in different locations due to: a. arbitrage. b. government intervention in foreign exchange markets. c. free trade in goods and services. d. the actions of importers and exporters. 2. How can one profit through arbitrage if the dollar per euro exchange rate in London is $2 per pound while in New York is $1.95 per pound? a. Buy dollars in New York and sell them in London b. Buy pounds in London and sell them...
1. When interest rates in Australia decrease relative to interest rates in other countries, we may...
1. When interest rates in Australia decrease relative to interest rates in other countries, we may see Australian dollar Select one: a. depreciation and a decrease in net exports. b. appreciation and an increase in net exports. c. appreciation and a decrease in net exports. d. depreciation and an increase in net exports. 2. We can expect an increase in the value (appreciation) of the Australian dollar relative to Indian rupiah when Select one: a. Indian economy is going into...
Chapter 1 Running Your Own MNC Developing Your Idea Create an idea for your own MNC...
Chapter 1 Running Your Own MNC Developing Your Idea Create an idea for your own MNC to conduct international business. Your idea should be simplified to the degree that you could possibly implement it someday. However, your idea should also be sufficiently creative to be successful if done properly. Your idea should focus on one country and one foreign currency, since many MNCs are focused in this manner when they are first created. So that you can recognize the issues...
Types of growth Ranking A. Increase share in a growing market. 1. B. Expand an existing...
Types of growth Ranking A. Increase share in a growing market. 1. B. Expand an existing market. 2. C. Acquire businesses. 3. D. Introduce new products to market. 4. 1. Rank the types of growth from highest to lowest, where highest = 1, in terms of the amount of shareholder value each typically creates from the same incremental increase in revenue. 2. True or False High-ROIC companies typically create more value by attempting to raise the ROIC while lower-ROIC companies...
1.) Sam Strother and Shawna Tibbs are vice presidents of Mutual of Seattle Insurance Company and...
1.) Sam Strother and Shawna Tibbs are vice presidents of Mutual of Seattle Insurance Company and co-directors of the company’s pension fund management division. An important new client, the North-Western Municipal Alliance, has requested that Mutual of Seattle present an investment seminar to the mayors of the represented cities, and Strother and Tibbs, who will make the actual presentation, have asked you to help them by answering the following questions. a. What are the key features of a bond? b....
1.) True or False? For all societies, resources are scarce, and technology is limited, while people’s...
1.) True or False? For all societies, resources are scarce, and technology is limited, while people’s wants and needs for goods and services seem to be unlimited. (2 points) 2.) (1 point) Adam Smith’s “invisible hand” refers to a.) the subtle and often hidden methods that businesses use to profit at consumers’ expense. b.) the ability of free markets to reach desirable outcomes, despite the self-interest of market participants. c.) the ability of government regulations to benefit consumers, even if...
62. As noted in the article about trading pits, a. futures pits in Chicago were closing...
62. As noted in the article about trading pits, a. futures pits in Chicago were closing down. b. futures pits in New York were closing down. c. floor trading on the New York Stock Exchange were closing down. d. All of the above. e. Only A and B of the above. 63. Which of the following are among the lessons that we can reasonably draw from the collapse of Continental Illinois? a. The aggressive pursuit of commercial loans was doomed...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT