Reading 18: Currency Exchange Rates-LOS h, (Part 1)习题精选 percent, forward, interest, face, 2010

土豆妮

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:

A) 0.91204.

B) 1.56670.

C) 0.88069.

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土豆妮

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?

A) $0.5142 / JOD.

B) $1.9450 / JOD.

C) $1.0936 / JOD.

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Forward(DC/FC) = Spot (DC/FC)[(1 + r domestic) / (1 + r foreign)]

(2.0010)(1.04/1.07)

(2.0010)(0.972)

= 1.9450

土豆妮

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?

A) 79.6226.

B) 80.3792.

C) 88.9876.

土豆妮

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?

A) 79.6226.

B) 80.3792.

C) 88.9876.

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Forward (DC/FC) = Spot (DC/FC)[(1 + r_domestic) / (1 + r_foreign)]

(80 CY/EGP)[(1 + 0.055) / (1 + 0.06)]

(80)(0.99528)

= 79.6226

土豆妮

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?

A) 0.8016.

B) 0.8194.

C) 0.8215.

土豆妮

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?

A) 0.8016.

B) 0.8194.

C) 0.8215.

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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.

土豆妮

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:

A) $0.55778/NZD.

B) $0.54233/NZD.

C) $0.56675/NZD.

土豆妮

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:

A) $0.55778/NZD.

B) $0.54233/NZD.

C) $0.56675/NZD.

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Interest rate parity is given by:

Forward (DC/FC) = $0.55/NZD × (1.075/1.06) = $0.55778/NZD