标题: Reading 18: Currency Exchange Rates-LOS h, (Part 1)习题精选 [打印本页]
作者: 土豆妮 时间: 2010-4-13 16:08 标题: [2010]Session 4-Reading 18: Currency Exchange Rates-LOS h, (Part 1)习题精选
Session 4: Economics: Economics for Valuation
Reading 18: Currency Exchange Rates
LOS h, (Part 1): Explain interest rate parity.
Assume the 1 year Euro to U.S. Dollar (USD) forward rate is 0.89348, the German interest rate is 3.38 percent, and the U.S. interest rate is 1.90 percent. If interest rate parity (IRP) holds, the Euro/USD spot rate is approximately:
作者: 土豆妮 时间: 2010-4-13 16:08
Assume the 1 year Euro to U.S. Dollar (USD) forward rate is 0.89348, the German interest rate is 3.38 percent, and the U.S. interest rate is 1.90 percent. If interest rate parity (IRP) holds, the Euro/USD spot rate is approximately:
Interest rate parity is given by:
Forward (DC/FC) = Spot (DC/FC) × [(1 + rdomestic) / (1 + rforeign)], or alternatively
Spot (DC/FC) = Forward (DC/FC) × [(1 + rforeign) / (1 + rdomestic)] = 0.89348 × (1.0190 / 1.0338) = 0.88069
Note that in this question, the dollar is the foreign currency and the Euro is the domestic currency.
作者: 土豆妮 时间: 2010-4-13 16:09
Assume that the domestic nominal rate of return is 4% and the foreign nominal rate of return is 5%. If the current exchange rate is 0.400 D/F, the forward rate consistent with interest rate parity is:
作者: 土豆妮 时间: 2010-4-13 16:09
Assume that the domestic nominal rate of return is 4% and the foreign nominal rate of return is 5%. If the current exchange rate is 0.400 D/F, the forward rate consistent with interest rate parity is:
F/S= (1 + rD) / (1 + rF) where rates are listed as DC/FC
F = (1.04/1.05)(0.400) = 0.396
作者: 土豆妮 时间: 2010-4-13 16:10
Given a forward exchange rate of 5 DC/FC, a spot rate of 5.102 DC/FC, domestic interest rates of 8%, and foreign rates of 10%, which of the following statements is CORRECT based on the approximation formula?
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A) |
Arbitrage opportunities exist. | |
|
B) |
Arbitrage opportunities do not exist. | |
|
C) |
Borrow local currency and lend foreign currency. | |
作者: 土豆妮 时间: 2010-4-13 16:10
Given a forward exchange rate of 5 DC/FC, a spot rate of 5.102 DC/FC, domestic interest rates of 8%, and foreign rates of 10%, which of the following statements is CORRECT based on the approximation formula?
|
A) |
Arbitrage opportunities exist. | |
|
B) |
Arbitrage opportunities do not exist. | |
|
C) |
Borrow local currency and lend foreign currency. | |
If (rD ? rF) is approximately equal to the forward premium, which is (Forward D/F) ? Spot(D/F) / Spot(D/F), then no arbitrage opportunities exist.
0.08 ? 0.10 ? (5 ? 5.102) / 5.102.
-0.02 ? -0.01999.
作者: 土豆妮 时间: 2010-4-13 16:10
Suppose the Argentina peso is at a 1-year forward premium of 4% relative to the Brazilian real and that Argentina’s 1-year interest rate is 7%. If interest rate parity holds, then the Brazilian interest rate is closest to:
作者: 土豆妮 时间: 2010-4-13 16:11
Suppose the Argentina peso is at a 1-year forward premium of 4% relative to the Brazilian real and that Argentina’s 1-year interest rate is 7%. If interest rate parity holds, then the Brazilian interest rate is closest to:
According to interest rate parity the currency with the lower interest rate is expected to appreciate so the Argentina rate of 7% is approximately 4% less than the Brazilian rate of 7 + 4 = 11%.
作者: 土豆妮 时间: 2010-4-13 16:11
Given the following information, what is the forward exchange rate implied by interest rate parity?
- U.S. interest rate = 9%.
- North Korea interest rate = 10%.
- Spot rate = 1.65 KPW/$.
作者: 土豆妮 时间: 2010-4-13 16:11
Given the following information, what is the forward exchange rate implied by interest rate parity?
- U.S. interest rate = 9%.
- North Korea interest rate = 10%.
- Spot rate = 1.65 KPW/$.
Forward rate (DC/FC) = Spot Rate (DC/FC) × [(1 + domestic rate) / (1 + foreign rate)],
Forward rate = 1 / 1.65 (KPW/$) × (1.09 / 1.10) = 0.60055 $/KPW, or 1.665 KPW/$.
Alternatively, forward rate = 1.65 (KPW/$) × (1.10 / 1.09) = 1.665 (KPW/$).
作者: 土豆妮 时间: 2010-4-13 16:11
The domestic interest rate is 8% and the foreign interest rate is 6%. If the spot rate is 4 domestic units/foreign unit, what should the forward exchange rate be for interest rate parity to hold?
作者: 土豆妮 时间: 2010-4-13 16:11
The domestic interest rate is 8% and the foreign interest rate is 6%. If the spot rate is 4 domestic units/foreign unit, what should the forward exchange rate be for interest rate parity to hold?
Using the following interest rate parity equation:
ForwardDC/FC=SpotDC/FC × [(1 + rdomestic) / (1 + rforeign )]
Solving for the forward rate: ForwardDC/FC = 4 × [(1 + 0.08) / (1 + 0.06)]
= 4(1.08) / (1.06)
= 4(1.01887)
= 4.07547
作者: 土豆妮 时间: 2010-4-13 16:12
The domestic interest rate is 7% and the foreign interest rate is 9%. If the forward exchange rate is 5 domestic units per foreign unit, what spot exchange rate is consistent with interest rate parity (IRP)?
作者: 土豆妮 时间: 2010-4-13 16:12
The domestic interest rate is 7% and the foreign interest rate is 9%. If the forward exchange rate is 5 domestic units per foreign unit, what spot exchange rate is consistent with interest rate parity (IRP)?
Using the following IRP equation: ForwardDC/FC=SpotDC/FC × [(1 + rdomestic) / (1 + rforeign )]
Solving for the spot rate: SpotDC/FC = ForwardDC/FC × [(1 + rforeign) / (1 + rdomestic)]
= [(1 + 0.09) / (1 + 0.07)](5)
= (1.09 / 1.07)(5)
= 5.09
作者: 土豆妮 时间: 2010-4-13 16:12
The domestic interest rate is 9% and the foreign interest rate is 7%. If the forward exchange rate is 5 domestic units per foreign unit, what spot exchange rate is consistent with interest rate parity?
作者: 土豆妮 时间: 2010-4-13 16:12
The domestic interest rate is 9% and the foreign interest rate is 7%. If the forward exchange rate is 5 domestic units per foreign unit, what spot exchange rate is consistent with interest rate parity?
F/S = (1 + rdomestic) / (1 + rforeign). Note: in this equation, exchange rates are quoted as Domestic/Foreign.
S = F (1 + rF) / (1 + rD) = (5)(1.07) / (1.09) = 4.908
作者: 土豆妮 时间: 2010-4-13 16:13
One-year interest rates are 7.5% in the U.S. and 6.0% in New Zealand. The current spot exchange rate is $0.55/NZD. If interest rate parity holds, today’s one-year forward rate ($/NZD) must be:
作者: 土豆妮 时间: 2010-4-13 16:13
One-year interest rates are 7.5% in the U.S. and 6.0% in New Zealand. The current spot exchange rate is $0.55/NZD. If interest rate parity holds, today’s one-year forward rate ($/NZD) must be:
Interest rate parity is given by:
Forward (DC/FC) = $0.55/NZD × (1.075/1.06) = $0.55778/NZD
作者: 土豆妮 时间: 2010-4-13 16:13
The domestic interest rate is 9% and the foreign interest rate is 7%. If the forward rate is 5 domestic units per foreign unit, what should the spot exchange rate be for interest rate parity to hold?
作者: 土豆妮 时间: 2010-4-13 16:13
The domestic interest rate is 9% and the foreign interest rate is 7%. If the forward rate is 5 domestic units per foreign unit, what should the spot exchange rate be for interest rate parity to hold?
F/S = (1 + rdomestic) / (1 + rforeign). Note in this equation exchange rates are quoted as Domestic/Foreign.
S = F (1 + rF) / (1 + rD) = (5)(1.07) / (1.09) = 4.908
作者: 土豆妮 时间: 2010-4-13 16:13
The U.S. interest rate is 4%, the Jordan interest rate is 7% and the $/JOD spot rate is 2.0010. What is the $/JOD forward rate that satisfies interest rate parity?
作者: 土豆妮 时间: 2010-4-13 16:14
The U.S. interest rate is 4%, the Jordan interest rate is 7% and the $/JOD spot rate is 2.0010. What is the $/JOD forward rate that satisfies interest rate parity?
Forward(DC/FC) = Spot (DC/FC)[(1 + r domestic) / (1 + r foreign)]
(2.0010)(1.04/1.07)
(2.0010)(0.972)
= 1.9450
作者: 土豆妮 时间: 2010-4-13 16:14
A resident of China can invest in Chinese yuan at 5.5% or in Egyptian pounds at 6%. The current spot rate is 80 CY/EGP. What is the one-year forward rate expressed in CY/EGP?
作者: 土豆妮 时间: 2010-4-13 16:14
A resident of China can invest in Chinese yuan at 5.5% or in Egyptian pounds at 6%. The current spot rate is 80 CY/EGP. What is the one-year forward rate expressed in CY/EGP?
Forward (DC/FC) = Spot (DC/FC)[(1 + rdomestic) / (1 + rforeign)]
(80 CY/EGP)[(1 + 0.055) / (1 + 0.06)]
(80)(0.99528)
= 79.6226
作者: 土豆妮 时间: 2010-4-13 16:14
An investor can invest in Tunisian dinar at r = 6.25% or in Swiss francs at r = 5.15%. She is a resident of Tunisia and the current spot rate is 0.8105 TND/SF. What is the approximate one-year forward rate expressed in TND/SF?
作者: 土豆妮 时间: 2010-4-13 16:14
An investor can invest in Tunisian dinar at r = 6.25% or in Swiss francs at r = 5.15%. She is a resident of Tunisia and the current spot rate is 0.8105 TND/SF. What is the approximate one-year forward rate expressed in TND/SF?
The approximate forward premium/discount is given by the interest rate differential. This differential is: 6.25% ? 5.15% = 1.10%. Since Tunisia has higher interest rates, its currency will be at a discount in the forward market. This discount equals: 0.011 × 0.8105 = 0.0089. Since the exchange rate is quoted in TND/SF, as a depreciating currency, it will take more TND to buy one SF. The forward rate is thus: 0.8105 + 0.0089 = 0.8194 TND/SF. In other words, the SF is stronger in the forward market.
作者: luqian55 时间: 2010-5-31 06:38
thanks
作者: annyyu 时间: 2011-1-7 11:37
re
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