You observe that the inflation rate in the USA is 2 percent per year and that T-bills curently yeild 2.5 percent annually. Use the approximate international fisher effect equation in your calculations. a. What do you estimate the inflation rate to be in Austraila, if short-term Austrailian government securities yeild 5 percent per year? Do not round intermediate calculations and enter your answer as a percent rounded to 1 decimal place e.g. 32.1. b. What do you estimate the inflation rate to be in Canada, if short-term canadian government securities yeild 8 percent per year? Do not round intermediate calculations as mentioned above. C. What do you estimate the inflation rate to be in Taiwaan , if short-term government securities yeild 10 percent per year?

You observe that the inflation rate in the USA is 2 percent per year and that T-bills curently yeild 2.5 percent annually. Use the approximate international fisher effect equation in your calculations. a. What do you estimate the inflation rate to be in Austraila, if short-term Austrailian government securities yeild 5 percent per year? Do not round intermediate calculations and enter your answer as a percent rounded to 1 decimal place e.g. 32.1. b. What do you estimate the inflation rate to be in Canada, if short-term canadian government securities yeild 8 percent per year? Do not round intermediate calculations as mentioned above. C. What do you estimate the inflation rate to be in Taiwaan , if short-term government securities yeild 10 percent per year?

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter8: Relationships Among Inflation, Interest Rates, And Exchange Rates

Section: Chapter Questions

Problem 4ST

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You observe that the inflation rate in the United States is 1.3 percent per year and that T- bills currently yield 1.8 percent annually. Use the approximate international Fisher effect to answer the following questions. a. What do you estimate the inflation rate to be in Australia, if short-term Australian government securities yield 8 percent per year? (Enter your answer as a percent rounded to 1 decimal place, e.g., 32.1.) b. What do you estimate the inflation rate to be in Canada, if short-term Canadian government securities yield 11 percent per year? (Enter your answer as a percent rounded to 1 decimal place, e.g., 32.1.) c. What do you estimate the inflation rate to be in Taiwan, if short-term Taiwanese government securities yield 13 percent per year? (Enter your answer as a percent rounded to 1 decimal place, e.g., 32.1.) X Answer is complete but not entirely correct. a. Australian inflation rate b. Canadian inflation rate c. Taiwanese inflation rate 0.5 X % 5.5 X % 7.5 X %
(b) Assume AUD = 0.58 GBP and inflation is 3.5% pa in Australia and 7% pa in Great Britain. Estimate the AUD/GBP spot rate in one year's time and comment on the accuracy of this estimate.
Suppose the spot rate and the 90-day forward rate on the Brazilian real are 3.3054 and 3.3263, respectively. If the three-month interest rate on dollars is .27%, what do you think is the three-month interest rate on the Brazilian real? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Suppose the spot rate for the Canadian dollar is CAD1.034 = USD1, the 3-month forward rate is CAD1.036 = USD1, and the 1-year forward rate is CADS1.039. = USD1. If no other information is available, what will be your guess about the spot rate in 1 year?
The two-year interest rate is 11.2% and the expected annual inflation rate is 5.6%. a.What is the expected real interest rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) b-1. If the expected rate of inflation suddenly rises to 7.6%, what does Fisher’s theory say about how the real interest rate will change? multiple choice Real rate increases Real rate does not change Real rate decreases b-2. If the expected rate of inflation suddenly rises to 7.6%, what will be the new nominal rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Suppose that the 90-day forward rate is $1.17/€, the current spot rate is S1.20/€, and you expect the future spot rate in 90 days to be S1.21/€. If the standard deviation of the 90-day rate of appreciation of the euro relative to the dollar is 2% (in terms of the current spot rate), what range covers 95.46% of your possible profits and losses (assume a normal distribution on the future spot rate)? O a. [-S0.032, SO.112] O b. [-S0.008, S0.0OSS] O . [S0.023, S0.075] O d. [S0.016, S0.064]
Suppose annual inflation rates in the United States and Mexico are expected to be 6 percent and 80 percent, respectively, over the next several years. If the current spot rate for the Mexican peso is $.005, then the best estimate of the peso's spot value in three years is ________. Group of answer choices a$.00276 b$.01190 c$.00321 d$.00102
The two-year interest rate is 10.8% and the expected annual inflation rate is 5.4%. a.What is the expected real interest rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) b-1. If the expected rate of inflation suddenly rises to 7.4%, what does Fisher’s theory say about how the real interest rate will change? multiple choice Real rate does not change Real rate increases Real rate decreases b-2. If the expected rate of inflation suddenly rises to 7.4%, what will be the new nominal rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Suppose the year 1, year 2 and year 3 forecasts for the rate of inflation in Denmark are 3%, 4% and 5% respectively. Suppose also that the year 1, year 2 and year 3 forecasts for the rate of inflation in France are 11%, 9% and 8% respectively. If the expected spot rate between the Danish Krone (DKK) and the EUR is EUR0.1344/DKK at the end of year 3, what is the current spot rate? a. EUR0.119024/DKK b. EUR0.151762/DKK c. EUR0.128269/DKK d. EUR0.111027/DKK e. Not enough information to answer this question.
Today, each US Dollar can be exchanged for LLL 2.84 in LaLaLand. There is a general belief that three years from now the exchange rate will change to LLL 2.92. This information allows you to find the difference, each year, between the expected inflation rates between the USA and LaLaLand over the next three years. What is it? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Difference in annual inflation rates %
Suppose that actual inflation is 3 percent, the Fed's inflation target is 2.5 percentage points, and unemployment rate is 2.5 (which is 1.5 percent below the Fed's full-employment target of 4 percent). According to the Taylor Rule, what value will the Fed want to set for its targeted interest rate? Instructions: Enter your answer rounded to 1 decimal place. percent
Suppose the spot and three-month forward rates for the yen are ¥79.45 and ¥78.84, respectively. What would you estimate is the difference between the annual inflation rates of the United States and Japan? (A negative answer should be indicated by a minus sign. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Annual inflation rate differential %