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1) Suppose the information given below:

U.S. investors have $1,000,000 to invest:

1-year deposit rate offered on U.S. dollars = 12%
1-year deposit rate offered on Singapore dollars = 10%
1-year forward rate of Singapore dollars = $.412
Spot rate of Singapore dollar = $.400

a) Interest rate parity exists and covered interest arbitrage by U.S. investors results in the same yield as investing domestically.
b) Interest rate parity doesn't exist and covered interest arbitrage by U.S. investor’s results in a yield above what is possible domestically.
c) Interest rate parity exists and covered interest arbitrage by U.S. investors’ results in a yield above what is possible domestically.
d) Interest rate parity doesn’t exist and covered interest arbitrage by U.S. investor’s results in the yield below what is possible domestically.

2) Comparing Parity Theories. Compare and describe interest rate parity, purchasing power parity (PPP), and international Fisher effect (IFE).

3) Source of Weak Currencies. Currencies of some Latin American countries, like Brazil and Venezuela, frequently weaken against most other currencies. Why do not all U.S.-based MNCs use forward contracts to hedge their future remittances of funds from Latin American countries to U.S. even if they expect depreciation of currencies against dollar?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M915283

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