Essay Fx Currency

The risk free rates of interest in Canada and the United States are 4% and 5% per annum, respectively,. Calculate the value of a European call option to buy one Canadian dollar for US $.85 in nine months. Use put-call parity to calculate the price of a European put option to sell one Canadian dollar for US d$.85 in nine months. What is the price of a call option to buy US $ .85 with one Canadian dollar in nine months?

On January 13, 1986 Dozier Industries, an American based firm, received notice that a bid on a project in the United Kingdom had been accepted. The project was to bring in £1,175,000 in revenue. Therefore, the revenue received for this project will need to be transferred into US dollars. When Dozier issued the bid on December 3, 1985 the project the exchange rate was $1.4820/£. This rate would have provided Dozier with the desired 6% profit on the project. On January 13, the day the bid was accepted, the exchange rate had changed to $1.4480/£. On January 14 the rate had change again to $1.4370/£. This inflation in the dollar to the British pound has severe implications for the profit potential on this

Canada is using flexible exchange system after 1920 (Canada’s economy, 2011). Even though Canada financial system is in flexible exchange system, Canadian Dollar is still one of the strongest and creditable currencies in the world because of its careful global investment policies and vigorous banking system. As Canada is an open economic market, the value of its currency will be determined by its and world economy. Recently, Canada becomes one of the highest growths in its GDP in OECD. The Reason Canada with a strong economic is its sound banking and monetary guidelines, conservative financial framework and openness for trade. In fact, Canada has become one of the highest percentages of

There is not equilibrium, therefore, the Yen interest rate is lower than franc and with 6% equilibrium can only be attained when yen increase by -0.0364 so as to can make higher yield returns as Swiss Franc in the forward market.

3. If the dollar _________ from 1.2 euros per dollar to 0.8 euros per dollar, the euro _________ from 0.83 dollars to 1.25

By using the above facts and figures, we can find the expected returns both of USA and UK currencies.

According to the interest rate parity theory, there is no bargain of interest. In other words, what is gained in the interest rate differential is in lost in the exchange rate. The exchange rate moves to effectively bring about the interest rate

Expected ZAR in USD under PPP in 4 years under PPP = (0.158) x [(1+0.07) 4/(1+0.05) 4] = $0.1704/rand.

• Assume that the U.S. inflation rate becomes high relative to Canadian inflation. Other things being equal, how should this affect the (a) U.S. demand for Canadian dollars, (b) supply of Canadian dollars for sale, and (c) equilibrium value of the Canadian dollar?

Now we have to calculate the inflation rate of both countries using the CPI index. To calculate the inflation rate we have to

a. If using the December 1975lending rates, the peso would depreciate against the dollar by 5.9% because Mexico’s interest rate is nearly twice as high as the United States’.

i) The exchange rate is the rate at which one can exchange the currency of one country for the currency of another country. It can also be regarded as the value of one country’s currency in relation to another currency. Basically, it is the price of a nation’s currency in terms of another currency. Therefore, the exchange rate has two components, the domestic currency and foreign currency, and it can be quoted directly or directly. In a direct quotation, the foreign currency is the base currency and the domestic currency is the counter currency. While in an indirect quotation, the domestic currency is the base currency and the domestic currency is the counter

1. Over the past year you earned a nominal rate of interest of 10 percent on your money. The inflation rate was 5 percent over the same period. The exact actual growth rate of your purchasing power was

Exchange rate between the country’s currency and CDN dollar as at the time of the project

Before discussing the economic literature on the relationship between interest rates and exchange rates in full, it will be useful to briefly discuss some of the important theories of exchange rate determination. There are many theories such as the theory of Purchasing Power Purchase Agreement (PPP), the Flexible Price Monetary Model (FPM), Sticky Price Monetary Model (SPM), Real Interest Rate Differential Model (RIRD), and Portfolio Balance Theory (PBT) of exchange rate determination. The PPP to maintain equality between domestic and foreign prices are based on the domestic currency through commodity arbitrage. If the equilibrium is violated, the same commodity after exchange rate adjustment will be sold at different prices in different