International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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Over the past year, China has experienced an inflation rate of 22 percent, in contrast to the U.S. inflation of 3 percent. At the same time, the exchange rate has gone from Y8.7 per U.S. $1to Y8.3 per U.S.\$1. Calculate the change in the real value of the yuan over the past year.
In the spot market, $1 is currently equal to £.55. The expected inflation rate in the U.K. is 4 percent and in the U.S. 3 percent. What is the expected exchange rate two years from now if relative purchasing power parity exists?
£.5391
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£.5555
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£.5667
If there is 10% inflation in Brazil, 15% inflation in Argentina, and the Argentine peso weakens by 21% relative to the Brazilian real, by how much has the peso strengthened or weakened in real terms. What effect do you expect that this change in the real exchange rate would have on trade between the two countries?
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- 1.A research institution has just published projected inflation rates for the United States andGermany for the next year. U.S. inflation is expected to be at 10% per year while German inflationis expected to be at 4% per year. If the current exchange rate is $0.95/€, what should be theexchange rate for the next years? 4. Suppose exchange rate for the British pound, Euro, and Australia dollar were $1.400, $1.225, and$0.875, 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 forwardrate on a Dollar Currency portfolio (DCP) (DCP 1 = £1 + €1 + AU$1) if interest parity were tohold?arrow_forward(a) Suppose that the current exchange rate between the U.S. dollar ($) and the pound sterling (£) is Se/$=0.75 (i.e. $1 = £0.75). The basket of goods and services consumed by a typical household cost £200 in the UK and $300 in the U.S. A one-year U.S. Treasury bill yields an annual rate of retum of 3%, while a comparable UK Treasury bill yields 5%. The Federal Reserve is expected to keep the U.S. inflation rate at 2% over the coming year, while the Bank of England is expected to keep the UK inflation rate at 3% over the same period. (1) Is the pound overvalued or undervalued relative to the dollar by the standard of absolute purchasing power parity?arrow_forwardFinance Suppose the spot and three-month forward rates for the yen are ¥79.70 and ¥79.04, respectively. b. What would you estimate is the difference between the annual inflation rates of the United States and Japanarrow_forward
- Suppose inflation rates in the U.S. and France are expected to be 4% and 9%, respectively, next year and 6% and 7%, respectively, in the following year. If the current spot rate is $.1050, then the expected spot value of the franc in two years is a. $.1111 b. $.0992 c. $.1074 d. $.1024arrow_forward1. Which of the following regarding inflation is true? (a) If CPI changes from 100 to 105 in a year and then changes from 105 to 100 in the following year, then the initial rate of price increase is greater than the following rate of price decrease. (b) If CPI doubles in one year and then remains at that high level for five years, it means that the country suffers high inflation for five years. (c) If CPI is cut by half in one year, it means that the deflation rate of that year is 0.5%. ( d) Increasing CPI means that money is getting more and more valuable. (e) None of the above.arrow_forwardPurchasing Power Parity If the current spot rate between the U.S. dollar and the Swedish krona was $1 = 7.6523 krona, and if the inflation rate in the United States was 6.1 percent and in Sweden it was 3.1 percent, then what would be the expected spot rate in one year? Note: Round your calculations and answer to 4 decimal places.arrow_forward
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