Financial Aspects of International Trade.

1. If a Euro buys 1.2US$, and US interest rate is 1%, and Euro rates are 2%, what should be
the forward contract rate so that covered interest parity hold.
2. Assume I am a US investor. 1$=100 Yen, at spot market now. I borrow 1M$ from a bank
at 1%, and will earn 5% in Japan when I put that money in Japanese CD’s. What is the
exchange rate that I can break even or make money?
3. Relative PPP it tells that if inflation in Brazil is 10% on average in long
run, and USA is 2%, we expect US$ to appreciate how much?
S=US$/Brazilian real
.
4. So a US productivity (traded/nontraded) goes up faster than Brazil,
then we expect real exchange rate to appreciate?

 

 

Sample Solution

ACED ESSAYS