Answered: As of March 18, 2009, the exchange rate…

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter4: Exchange Rate Determination

Section: Chapter Questions

Problem 25QA

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Question

As of March 18, 2009, the exchange rate between the Turkish Lira and U.S. dollar is YTL1.70/$. The consensus forecast for the U.S. and Turkey inflation rates for the next 1-year period is 1.3% and 8.5%, respectively. How would you forecast the exchange rate to be at around March 18, 2010? What is the expected rate of change in exchange rate?

Using the approximation formula
Using the exact formula

2. If the nine-month forward rate F₉(Y/$) = 82, and the inflation rate in the U.S. and Japan are 1.6% and -0.8% respectively, what should be S(Y/$)?

3. If the 3-month CD rate is 1.2% (annual) in Thailand and if the expected annual inflation is 5.7%, what is the real annual interest rate?

4. If the International Fisher Effect holds, and if the following information is given, what should be S(MYD/SGD)?

The expected inflation in Malaysia is 4%

The expected inflation in Singapore is 3%

F(SGD/MYD) is 0.3

SGD is Singapore dollar and MYD is Malaysian Ringgit

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