Exam 4: Parity Conditions in International Finance and Currency Forecasting

Suppose it is January 1,1998 and spot pounds are selling at $1.7342,while 90-day forward pounds are selling at $1.7156.At the same time,DM spot and 90-day forward rates are $0.6138 and $0.6014,respectively.According to these quotes the

In its absolute version,purchasing power parity states that price levels worldwide should be _______when expressed in a common currency.

The inflation rates in the U.S.and France in January 1991 were expected to be 4% per annum and 7% per annum,respectively.If the current spot rate that day was $.1050,then the expected spot rate in three years was

If the U.S.trade balance with Japan is expected to go from a deficit this year to a surplus next year,the forward rate on yen would

If annualized interest rates in the U.S.and France on January 1,1991 are 9% and 13%,respectively,and the spot value of the franc is $.1109,then at what 180-day forward rate will interest rate parity hold?

When real interest rates are determined by the global supply and demand for funds,we claim that it is an example of

On January 1,1985,the annual inflation rates in the U.S.and France were expected to be 4% and 6%,respectively.If the current spot rate that day was $.1250,then the expected spot rate in two years was

If a country's freely floating currency is undervalued in terms of purchasing power parity,its capital account is likely to be

The following exchange and interest rate quotations in 1998 were observed: An arbitrage profit can be obtained by

Suppose the spot rates on Janurary 1,1992 for the pound,mark,and Swiss franc were $1.50,$.42,and $.48,respectively.At the time,the associated 90-day interest rates annualized were 12%,6%,and 4%,while the U.S.90-day interest rate annualized was 8%.What was the 90-day forward rate on a DCU DCU 1 = £1 + DM1 + SFr1 if interest parity were to hold?

Suppose annual inflation rates in the U.S.and Mexico are expected to be 6% and 80%,respectively,over the next several years.If the current spot rate for the Mexican peso is $.005,then the best estimate of the peso's spot value in 3 years is

A 150% real return in Brazil is higher than a 15% dollar return in the U.S.

If the expected inflation rate is 5% and the real required return is 6%,then the Fisher effect says that the nominal interest rate should be

Which one of the following parity theories states that,in its absolute version,price levels globally should be equal when expressed in a common currency?

On January 1,1994,the annual inflation rates in the U.S.and Italy were expected to be 4% and 7%,respectively.If the current spot rate on that day was $1 = L2,000,then the expected spot rate for the lira in three years was

The current five-year Euro yen and Eurodollar rates are 8% and 12.5% per annum,respectively.What is the implied forward premium or discount of the yen over the current spot rate for a five-year forward contract?

The 90-day interest rates annualized in the U.S.and Japan are,respectively,10% and 7%,while the direct spot quote for the yen in New York is $.004300.At what 90-day forward rate would interest rate parity hold?

It is July 1,1990.Suppose the spot rates for the pound,mark,and Swiss franc are $1.30,$.35,and $.40,respectively.The associated 90-day interest rates annualized are 16%,8%,and 4%,while the U.S.90-day interest rate annualized is 12%.What is the 90-day forward rate on an ACU ACU 1 = £1 + DM1 + SFr1 if interest parity holds?

Suppose five-year deposit rates on Eurodollars and Euro marks are 12% and 8%,respectively.If the current spot rate for the mark is $0.50,then the spot rate for the mark five years from now implied by these interest rates is

A rise in the inflation rate in one nation relative to others will be associated with a fall in the first nation's exchange rate and with a rise of its interest rate relative to foreign interest rates.The two conditions combined result in the _________ Effect.