The three year zero rate is 7% per annum and the four year zero rate is 7.5% pa (both continuously compounded). What is the one year (continuously compounded) forward rate starting in three years’ time? (2 marks) With the formula with continuously compounded‚ = =0.09 =9% The one year forward rate starting in three years’ time is 9% 1. The zero rate curve is flat at 6% pa with semi-annual compounding. What is the value of a FRA where the holder receives interest at the rate of 8% per annum with
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In the face of rising inflationary pressure in Hong Kong‚ some people have suggested that the Linked Exchange Rate system is the root cause of the situation and that the Hong Kong dollar should no longer be linked to the US dollar. The Financial Secretary already stated in his blog on 14 August that the Link continues to be the most appropriate exchange rate arrangement for Hong Kong. I will elaborate further on a few related issues. Many people who advocate un-pegging the Hong Kong dollar from
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Russia Exchange rate system Russia used to pledge its nominal exchange rate with some main currencies such as US dollar. However‚ the Russian crisis has forced Russia to develop managed floating exchange rate system‚ where the exchange rate driven by market forces of the Ruble’s demand and supply with the help of government intervention. With this exchange rate‚ the government can ensure stability and predictability of ruble exchange rate and prevent abrupt fluctuation of the Ruble rate. Moreover
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Class Time on Thursday‚ 7/18 1. | London | New York | Spot Exchange Rate ($/GBP) | 1.3264 | 1.3264 | Interest Rates | 3.900% | 4.500% | Expected Inflation Rates | 0.650% | 1.250% | a. What is the expected rate of inflation in London? iPC - iBC = PC - BC 4.500% - 3.900% =1.250% - BC PC = 0.650% b. Using Uncovered Interest Rate Parity‚ what is the value of the expected spot exchange rate in two years? E(ST) = S0 * [(1+i)/(1+i*)]T E(S2) = 1.3264 * [(1.045)/(1
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to volatile exchange rate because volatility increases exchange rate risk. If the participants in international trade are aware about exchange rate risks‚ they may prefer to switch to domestic activities where profits are relatively less uncertain rather than continuing trading in foreign markets. Alternatively‚ international traders may attempt to use forward foreign exchange markets in order to hedge against any possible losses. EXCHANGE RATE SYSTEM IN INDIA The exchange rate regime in our
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A brief history of Exchange rate of Bangladesh Since Bangladesh was the part of Pakistan called East Pakistan‚ shared the same currency and trade-policy history as the rest of Pakistan until the liberation of Bangladesh. Bangladeshi taka was created on January 1 1972. Pakistan rupees in circulation remained legal tender until replaced by the taka 1:1 beginning March 4 1972. The taka was set at par with the Indian rupee‚ and fixed to sterling at Tk 18.9677‚ or Tk 7.2797 to the United States dollar
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Factors That Influence Exchange Rates Aside from factors such as interest rates and inflation‚ the exchange rate is one of the most important determinants of a country’s relative level of economic health. Exchange rates play a vital role in a country’s level of trade‚ which is critical to most every free market economy in the world. For this reason‚ exchange rates are among the most watched‚ analyzed and governmentally manipulated economic measures. But exchange rates matter on a smaller scale
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Factors that affect exchange rates. Like any price‚ the exchange rate deviates from the cost basis - the purchasing power of currencies – under the influence of supply and demand of currency. The ratio of the supply and demand depends on several factors. It reflects connections with other economic categories - cost‚ price‚ money‚ interest‚ balance of payments‚ etc. There is a complex of interweaving and nomination of decisive factors. Among them are the following. • 1.The rate of inflation. The
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INSTRUCTORS MANUAL: MULTINATIONAL FINANCIAL MANAGEMENT‚ 9TH ED. CHAPTER 2 SUGGESTED ANSWERS TO CHAPTER 2 QUESTIONS 1. a. Describe how these three typical transactions should affect present and future exchange rates. Joseph E. Seagram & Sons imports a year’s supply of French champagne. Payment in euros is due immediately. ANSWER. The euro should appreciate relative to the dollar since demand for euros is rising. b. MCI sells a new stock issue to Alcatel‚ the French telecommunications company
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Therefore‚ first section in the report discusses the background of US-China trading. The next section explains the dynamics of exchange rate mechanism works and how it set upon. Then‚ fourth section elaborates the factors that lead to distortions in trade between two countries due to unfair trade. The fifth section clarifies about China’s exchange rate policy and its impact on the global financial and economic market while subsequent section analyze about the factors behind the trade deficit
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