Assume that interest rate parity exists. One year ago, the spot rate of the euro was $1.40 and the spot rate of the Japanese yen was $.01. At that time, the one-year interest rate of the euro and Japanese yen was 3% and the one-year U.S. interest rate was 7%. One year ago, you used the one-year forward rate of the euro to derive a forecast of the future spot rate of the euro and the yen one year ahead. Today, the spot rate of the euro is $1.39, while the spot rate of the yen is $.009. Which currency did you forecast more accurately? Assume that interest rate parity exists One year ago the
Assume that interest rate parity exists. One year ago, the spot rate of the euro was $1.40 and the spot rate of the Japanese yen was $.01. At that time, the one-year interest rate of the euro and Japanese yen was 3% and the one-year U.S. interest rate was 7%. One year ago, you used the one-year forward rate of the euro to derive a forecast of the future spot rate of the euro and the yen one year ahead. Today, the spot rate of the euro is $1.39, while the spot rate of the yen is $.009. Which currency did you forecast more accurately? Assume that interest rate parity exists One year ago the
Chapter9: Forecasting Exchange Rates
Section: Chapter Questions
Problem 29QA
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Assume that interest rate parity exists. One year ago, the spot rate of the euro was $1.40 and the spot rate of the Japanese yen was $.01. At that time, the one-year interest rate of the euro and Japanese yen was 3% and the one-year U.S. interest rate was 7%. One year ago, you used the one-year forward rate of the euro to derive a forecast of the future spot rate of the euro and the yen one year ahead. Today, the spot rate of the euro is $1.39, while the spot rate of the yen is $.009. Which currency did you forecast more accurately?
Assume that interest rate parity exists One year ago the
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