Fin 565 homework - Study guides, Class notes & Summaries

1. Question: Covered Interest Arbitrage Assume the following information: 2. Question: Interest Rate Parity Consider investors who invest in either U.S. or British one-year Treasury bills. Assume zero transaction costs and no taxes. a) If interest rate parity exists, then the return for U.S. investors who use covered interest arbitrage will be the same as the return for U.S. investors who invest in U.S. Treasury bills. Is this statement true or false? If false, correct the statement. b) If in...

1. Question: Percentage Depreciation Assume the spot rate of the British pound is $1.73. The expected spot rate 1 year from now is assumed to be $1.66. What percentage depreciation does this reflect? 2. Question: Inflation Effects on Exchange Rates Assume that the U.S. inflation rate becomes high relative to Canadian inflation. Other things being equal, how should this affect the (a) U.S. demand for Canadian dollars, (b) supply of Canadian dollars for sale, and (c) equilibrium value of the Cana...