--%>
Assignment Help - homework help

Prediction of exchange rate

As of November 1, 1999, the exchange rate among the Brazilian real & U.S. dollar is R$1.95/$. The consensus estimate for the U.S. & Brazil inflation rates for the next 1-year period is 2.6% & 20.0%, respectively. How would you predict the exchange rate to be at around November 1, 2000?

Since the inflation rate is quite high in Brazil, we may use the purchasing power parity to forecast the exchange rate.

                              E(e)        = E(∏$) - E(∏R$)

                                             = 2.6% - 20.0%

                                             = -17.4%

                              E(ST)       = So(1 + E(e))

                                             = (R$1.95/$) (1 + 0.174)

                                             = R$2.29/$

 

   Related Questions in Financial Management

  • Q : Describe how exchange rate fluctuations

    Describe how exchange rate fluctuations influence the return from a foreign market measured in dollar terms. Describe the empirical evidence on the effect of exchange rate uncertainty on the risk of foreign investment.Mostly exchange rate fluctu

    		•
  • Q : Explain the term Value at Risk Explain

    Explain the term Value at Risk.

    		•
  • Q : Defined benefit and a defined

    Differentiate in brief a defined benefit and a defined contribution pension plan.

    		•
  • Q : What is Margin Hedging What is Margin

    What is Margin Hedging?

    		•
  • Q : Describe Euronote market Describe

    Describe Euronote marketEuronotes are short-term notes written through a group of international investment or commercial banks termed a “facility.”  A client-borrower makes an agreement along with a facility to issue Euronotes i

    		•
  • Q : What are the characteristics of

    What are the characteristics of calibration?

    		•
  • Q : International bank crisis involving

    In brief discuss the cause & the solution(s) to the international bank crisis involving less developed countries.The international debt crisis started on August 20, 1982 while Mexico asked more than 100 U.S. and foreign banks to forgive its

    		•
  • Q : Running of net balance of payments

    Explain how a country can run net balance of payments deficit or surplus.A country can run net BOP deficit or surplus by engaging in the official reserve transactions. For instance, an overall BOP deficit can be supported through drawing down th

    		•
  • Q : Calculate the weighted average cost of

    Great Corporation has the following capital situation. Debt: One thousand bonds were issued five years ago at a coupon rate of 11%. They had 20-year terms and $1,000 face values. They are now selling to yield 9%. The tax rate is 37% Preferred stock: Two thousand shares of preferred are outstanding,

    		•
  • Q : International monetary system how does

    how does adquate liquidity ensures a good international monetary sustem

    		•