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Due to the integrated nature of their capital markets, investors in both the U.S. and U.K. require the same real interest rate, 2.6%, on their lending. There is a consensus in capital markets that the annual inflation rate is likely to be 2.4% in the U.S. and 2.6% in the U.K. for the next three years. The GBP/USD rate is currently 1.3054. Compute the nominal interest rate per annum in the U.S.., assuming that the Fisher effect holds. (X.XX%)
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- BOA (US Bank) believes that New Zealand dollar will appreciate over the next 90 days from US$0,48/NZ$ to US$0.50/NZS. The following information is available. Country Interest Rate (annual) 7.20% New Zealand 6.8% BOA has the capacity to borrow $5 million from Chase Bank. If BOA forecasting is correct, what will be its US$ profit from this FX speculation over the 90 days period? US O around $0.26 million O around $0.21 million O around $5.10 million. O around $5.30 millionDue to the integrated nature of their capital markets, investors in both the U.S. and U.K. require the same real interest rate, 2.1%, on their lending. There is a consensus in capital markets that the annual inflation rate is likely to be 1.7% in the U.S. and 2.5% in the U.K. for the next three years. The GBP/USD rate is currently 1.3053. What is your expected future spot for GBP/USD two years from now? (X.XXXX)Due to the integrated nature of their capital markets, investors in both the U.S. and Switzerland. require the same real interest rate, 2.7%, on their lending. There is a consensus in capital markets that the annual inflation rate is likely to be 2.3% in the U.S. and 3.1% in Switzerland for the next three years. The USD/CHF rate is currently 0.9582. What is your expected future spot for USD/CHF one year from now? (X.XXXX)
- If the foreign interest rate is 4%, the risk premium on domestic assets, ρ, is 18%, and the expected rate of depreciation of the domestic currency against the foreign currency is 3%, what is the domestic interest rate in percentage terms, given covered interest parity holds? [All variables have a 1-year time frame.]Due to the integrated nature of their capital markets, investors in both the U.S. and U.K. require the same real interest rate, 2.1%, on their lending. There is a consensus in capital markets that the annual inflation rate is likely to be 2.5% in the U.S. and 3.5% in the U.K. for the next three years. The GBP/USD rate is currently 1.3016. Compute the nominal interest rate per annum in the U.K., assuming that the Fisher effect holds. (X.XX%)A U.S. company can borrow 10,000 pounds in Great Britain for 6% interest, paying back 10,600 pounds in one year. Alternatively, the U.S. company can borrow an equivalent amount of U.S dollars in the United States and pay 13% interest. Assuming capital markets are efficient, estimate the expected inflation rate in the United States if inflation in Great Britain is expected to be zero. Select one: a. 7% b. 6.6% C. 6.2% d. 5.4%
- Currently, the spot rate is RM4.2000/USD and the one year forward rate is RM4.1000/USD. Interest rate in United States is 3% per annum and in Malaysia is 2% per annum. Assume that you can borrow as much as USD100,000 or RM420,000 for your coming project. If Interest Rate Parity (IRP) is not holding, determine how would you carry out covered interest arbitrage (CIA) and compute the profit.The Canadian Dollar (CAD) has shown higher volatility in recent days. The spot rate is $0.5/CAD1. Central Bank undertakes arbitrage transactions in CAD using a sum of $10 million. Annual interest rates are 9.9 per cent in Australia and 5.9 per cent in Canada. The bank can borrow or lend at these rates. Use interest rate parity theorem. 1) What is the expected net spread, if the forward rate is $0.54/CAD1? 2) At what forward rate will the arbitrage opportunity disappear? O a. 1) 5.81%; 2) $0.78/1CAD O b. None of the options is correct O c. 1) 2.68%; 2) $0.36/1CAD O d. 1) 4.47%; 2) $0.52/1CAD O e. 1) 3.80%; 2) $0.62/1CADSuppose the interest rate on investments in GBP is 12% in London and the interest rate for comparable investments in USD in New York is 7%. Suppose further, that the spot rate is USD 1.95 /GBP and that the one-year forward rate is USD 1.87 /GBP a) Is the covered interest parity violated? Is there an arbitrage opportunity? b) If yes, how high is it if you were able to borrow USD 1 million from a US-based bank?
- If the U.S. interest rate is higher than the U.K. interest rate, will the U.K. investors place short-term funds in the U.S.? Explain. Assume the investment is covered. If the rate of inflation in the European Union (EU) is above the rate of inflation in the U.S., by 4 percentage points and the dollar depreciates against the euro by 5% during the same time period, what is expected to happen to the real exchange rate? The e exchange rate is defined as the dollar price of euro($/€).The $/£ spot exchange rate is currently $1.50 per pound and is expected to fall to $1.42 per pound one year from now. The annual interest rate on pound deposits is 5 percent. A. Calculate the expected annual dollar rate of return on one-year British-pound deposits using the precise approach. B. Calculate the expected annual dollar rate of return on one-year British-pound deposits using the approximation approach.A U.S. company can borrow 10,000 pounds in Great Britain for 6% interest, paying back 10,600 pounds in one year. Alternatively, the U.S. company can borrow an equivalent amount of U.S dollars in the United States and pay 13% interest. Assuming capital markets are efficient, estimate the expected inflation rate in the United States if inflation in Great Britain is expected to be zero.