Reading 66: International Asset Pricing LOS G: 习题精选 2010, face, exchange, investor, security

honeycfa

LOS g: Calculate the end-of-period real exchange rate and the domestic-currency ex-post return on a foreign bond (security), given the end-of-period exchange rate, the beginning-of-period real exchange rate, and the inflation rates during the period.

A U.S. investor purchased a U.K. bond one year ago. The exchange rate at the time was 1.5 to 1 (dollars to pounds) and the beginning-of-period ratio of the price levels of the consumption baskets was 2 to 1 (dollars to pounds). Beginning of the year interest rates were 7% in the U.S. and 12% in the U.K. Inflation during the year was expected to be 5% in the U.S. and 10% in the U.K. Today the exchange rate is 1.6. What is the ex-post domestic currency return on the U.K. bond to the U.S. investor?

A) 14.67%.

B) 18.67%.

C) 5.33%.

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The dollar was expected to appreciate (lower inflation), but depreciated by 6.67% (= 1.6 / 1.5 = 1.0667 or 6.67%) instead. Hence, the return to U.S. investor is the foreign interest rate plus currency appreciation, or 18.67% (= 12% foreign rate + 6.67% appreciation).

 

[此贴子已经被作者于2010-4-15 15:47:30编辑过]

honeycfa

A U.S. investor purchased a Swiss bond one year ago. At the time of purchase, U.S. inflation and interest rates were 2% and 4%, respectively, while Swiss rates were 5% and 7%, respectively. The beginning-of-period exchange rate was 2 ($/SF; SF is the Swiss Franc). The ratio of the price of the U.S. to Swiss consumption baskets at the beginning of the period was also 2. Inflation was exactly as expected during the year. What was the end-of-period real exchange rate?

A) 2.02.

B) 0.92.

C) 1.00.

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First calculate the expected spot rate using purchasing power parity: E(S₁) = 2 × (1.02 / 1.05) = 1.9429. If the end-of-period nominal rate is 1.94, then the end-of-period real rate must be 0.999 = X = S (P_F / P_D) = 1.94(1 × 1.05 / 2 × 1.02).

luqian55

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