BUAD - Assignment
1. Based on the risk-free interest rate data presented below, which of these six currencies will appreciate against the USD over the next year and which of these six currencies will depreciate against the USD over the next year?
|
Country (Currency)
|
One-Year Treasury Bill Rate
|
Current Exchange Rate
|
|
Japan (JPY)
|
0.10%
|
.01 USDs per JPY
|
|
S. Korea (KRW)
|
2.50%
|
.05 USDs per KRW
|
|
China (CNY)
|
6% |
.20 USDs per CNY
|
|
U.K (GBP)
|
3.50%
|
2 USDs per GBP
|
|
France (EUR)
|
-.02% |
1 USD per EUR
|
|
Mexico (1VDCN)
|
7% |
.10 USDs per M)Cts1
|
|
USA (USD)
|
1% |
-
|
What are the one-year-ahead forward exchange rates for the JPY-USD, KRW-USD, CNY-USD, GBP-USD, EUR-USD and MXN-USD exchange rates (in USDs per unit of the foreign currency)?
2. Country A's government has declared that it will peg its exchange rate to the EUR at parity (that is, one unit of country A's currency will equal one EUR). Given that country A also wants to maintain an open capital market with unfettered capital flows, what conditions must country A meet in order to maintain a credible fixed exchange rate policy?