International Finance Part 2
Jinal Desai
Project Part II: Fisher Effect
International Finance
Professor. Dr. Li
Question 1: Check the money market rate (one year government security) of US and your currency.
Answer 1: In 2012, the rate for the government security (government bond) was 8.5% but 2013 declined to 8.1% for 1 year maturity. (http://www.ceicdata.com/en/blog/india%E2%80%99s-interest-rate-structure). The exchange rate for December 2012 in IND/USD was 54.2 and December 2013 was 61.9. In the United States, the government security Treasury bill rate, for 2012 was 0.16% per year. However in 2013 was 0.13% for 1 year maturity. Additionally, compared to US, India’s interest rate for security was significantly greater. http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yieldYear&year=2012
Question 2: Find the inflation rates of US and your country in year 2013 and 2014. Make comparison.
Answer: The inflation rate for India had an average 8.69 from 2012 to 2015, reaching a high of 11.16 during November 2013 and a low of 4.28 November 2014. (http://www.tradingeconomics.com/india/inflation-cpi). Both US and India had an decrease on their inflation rate. The inflation rate during 2012 in the United States was 1.8% and India was 7.6%. For 2013 India had an inflation rate of 6.3% whereas United States has 1.5%. The inflation rate for 2014 both US and India was 10.9% (US) and 11 %( India) respectively.
The Fisher Effect for 2012-2013 (India/United States):
Equation: I=r+π
2012
2013
India
8.5%+7.6%=16.10
8.1%+6.3%=14.4
United States
0.16%+1.8=1.96
0.13%+1.5=1.63
Fisher Effect 2013-2014
2013
2014
India
8.1%+6.3%=14.4
8.7+11=19.70
United States
0.13%+1.5=1.63
0.25+10.9=11.50 http://www.tradingeconomics.com/india/interbank-rate Question 2: International Fisher Effect. Use above information and the information from Part I question 6 to test International Fisher Effect. Does it hold for year 2012-2013 and year 2013-2014 periods?
Part 1
Project Part II: Fisher Effect
International Finance
Professor. Dr. Li
Question 1: Check the money market rate (one year government security) of US and your currency.
Answer 1: In 2012, the rate for the government security (government bond) was 8.5% but 2013 declined to 8.1% for 1 year maturity. (http://www.ceicdata.com/en/blog/india%E2%80%99s-interest-rate-structure). The exchange rate for December 2012 in IND/USD was 54.2 and December 2013 was 61.9. In the United States, the government security Treasury bill rate, for 2012 was 0.16% per year. However in 2013 was 0.13% for 1 year maturity. Additionally, compared to US, India’s interest rate for security was significantly greater. http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yieldYear&year=2012
Question 2: Find the inflation rates of US and your country in year 2013 and 2014. Make comparison.
Answer: The inflation rate for India had an average 8.69 from 2012 to 2015, reaching a high of 11.16 during November 2013 and a low of 4.28 November 2014. (http://www.tradingeconomics.com/india/inflation-cpi). Both US and India had an decrease on their inflation rate. The inflation rate during 2012 in the United States was 1.8% and India was 7.6%. For 2013 India had an inflation rate of 6.3% whereas United States has 1.5%. The inflation rate for 2014 both US and India was 10.9% (US) and 11 %( India) respectively.
The Fisher Effect for 2012-2013 (India/United States):
Equation: I=r+π
2012
2013
India
8.5%+7.6%=16.10
8.1%+6.3%=14.4
United States
0.16%+1.8=1.96
0.13%+1.5=1.63
Fisher Effect 2013-2014
2013
2014
India
8.1%+6.3%=14.4
8.7+11=19.70
United States
0.13%+1.5=1.63
0.25+10.9=11.50 http://www.tradingeconomics.com/india/interbank-rate Question 2: International Fisher Effect. Use above information and the information from Part I question 6 to test International Fisher Effect. Does it hold for year 2012-2013 and year 2013-2014 periods?
Part 1