--%>
Assignment Help - homework help

Interest rate parity for determination of the exchange rate

Describe the allegations of interest rate parity for the determination of the exchange rate.

E

Expert

Verified

Supposing that the forward exchange rate is approximately an unbiased predictor of future spot rate, IRP is written as:

          S = [(1 + I£)/(1 + I$)]E[St+1?It]. 

Exchange rate is therefore estimated by relative interest rates, and expected future spot rate, conditional on the available information, It, as of the present time. One therefore may say that the expectation is self-fulfilling. As information set will be constantly updated as soon as the news comes in the market, exchange rate will display the highly dynamic, random behavior.

   Related Questions in Financial Accounting

  • Q : Case study of a wind turbine for rural

    The goal of this long problem is to validate the turbine performance estimates in specific (XYZ) wind regimes, and estimate its cost.  Below is a list of tasks you will need to accomplish, but you are not limited to these if you want to do more:  

    		•
  • Q : Maintaining multiple manufacturing

    Write down disadvantages and advantages of maintaining the multiple manufacturing sites as the hedge against exchange rate exposure.

    		•
  • Q : Essential condition for

    Specify the essential condition for the fixed-for-floating interest rate swap to be possible?

    		•
  • Q : Define Budget Manual Give a short

    Give a short introduction of the term ‘Budget Manual’?

    		•
  • Q : Benefits for a company to cross-list

    Explain the benefits you can think of for a company to (a) cross-list its equity shares on more than one national exchange, and, (b) to source new equity capital from foreign investors as well as domestic investors.

    		•
  • Q : What is Asset Management Asset

    Asset Management: The Asset management has two common definitions, one associating to advisory services and the other associated to corporate finance. In the initial instance, an advisor or financi

    		•
  • Q : Indirect world systematic risk Define

    Define and explain indirect world systematic risk.

    		•
  • Q : Define the term Assets Define the term

    Define the term Assets in Accounting?

    		•
  • Q : PPE The following information is taken

    The following information is taken from the financial statements of an entity: 20x4 20x3 Property, plant and equipment $4,600,000 $4,200,000 Accumulated depreciation (1,800,000) (1,350,000) Depreciation expense 560,000 Gain on disposal of PPE 65,000 The asset disposed of had a cost

    		•
  • Q : Accounting Treatment of Goods What are

    What are the various Accounting Treatment of Goods?

    		•