Rangkuman Ch 8 Teori Akuntansi Godfrey dalam Bahasa IndonesiaDeskripsi lengkap
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teori akuntansiDeskripsi lengkap
Rangkuman Ch 8 Teori Akuntansi Godfrey dalam Bahasa IndonesiaFull description
physics
Sawyer Chapter 8Deskripsi lengkap
an introductionFull description
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Sawyer Chapter 8
Chapter 8 Relationships among Inflation, Interest Rates, and Exchange Rates
Purchasing Power Parity (PPP) y
y
y
PPP
attempts attempts to quantify the inflation-exch i nflation-exchange ange rate relationship
Without international barriers consumers shift their demand to wherever prices are lower. The prices of the basket of products in two different should be equal when measured in a common currency. currency. Absolute Form PPP
Relative Form of PPP Because of market frictions (tariffs, transportation costs and quotas) prices of the same basket of products in different countries will not necessarily be the same when measured in a common currency.
With inflation home country price index become
Phome (1+Ihome)
Price index of foreign country will change with inflation
h = home country
f = foreign country
Pforeign (1+Iforeign)
I = inflation rate
With inflation the foreign country price index from the perspective of the home country becomes Pforeign (1+Iforeign )(1 + eforeign ) e =% change in foreign currency to home According to Purchasing Power Parity (PPP) the new price index of
home country with inflation should
equal the new price index of foreign country Phome (1+Ihome) = Pforeign (1+Iforeign )(1 + eforeign ) Solving for e (assume Phome = Pforeign initially)
% change in value of the foreign currency exchange rate will depend on the rates of expected inflation in the two countries e =% change change in foreign exchange rate rate = (1 + I h) / (1 + I f )
h = home country y
f = foreign country
Assume
I = inflation rate
the exchange of two countries is in equilibrium. equilib rium. Then the home country experiences 5% inflation and the foreign country experiences a 3% rate.
% change in foreign foreign currency currency to home =
1
- 1
21. Assume that the inflation rate in Singapore is 3%, while the inflation rate in the U.S. is 8%. According to PPP, the Singapore dollar should ____ by ____%. According to PPP PPP
Adjusted Spot Rate = Spot(1 + I h) / (1 + I f )
Does Not Occur because of confounding effects and lack of substitutes for some traded goods
Remember exchange rates are driven by more than inflation e = f (INF, INT, INC, GC, EXP) e = percentage change in the spot rate. INF = Change in differential of inflation between countries INT = Change in differential in interest between countries INC = Change in income levels of US and foreign country GC = Change in government controls EXP = Change in expectations of future exchange rate
For PPP to work if the price of an import becomes too high the consumer will switch to a substitute. May not happen.
International Fisher Effect (IFE) y
Use interest rates rather than inflation rates to explain why exchange rates fluctuate over time.
Interest rates in two countries differ because of differences in inflation rates which are buried i n the interest rates. The change in exchange rates should reflect the change in inflation and the exchange rate adjust based on that. (Like PPP). Also investing in another country with higher interest rates will not give any higher return than the investors home country after adjusting for inflation. If the markets guess about inflation is buried in the interest rate of a country and each country has the same real rate of interest then investing in another country with a higher interest rate may not be beneficial. When the investor repurchases his home currency the exchange rates should have adjusted so you only make the return of home country. One year risk free yield in US A = 4% One year risk free yield in Japan =2% Spot Yen $.021/Yen 2
If the yields reflect the actual inflation over the year what is the exchange rate in one year. Same formula as forward markets with interest rate parity (IR P). International
Change in Spot Rate e = [(1+Interest Rate home)/(1+Interest Rate Foreign)] - 1
24. IFE. Beth Miller does not believe that the international Fisher effect ( IFE) holds. Current one-year interest rates in Europe are 5 percent, while one-year interest rates in the U.S. are 3 percent. Beth converts $100,000 to euros and invests them in Germany. One year later, she converts the euros back to dollars. The current spot rate of the euro is $1.10.
a.
According to the IFE, what should the spot rate of the euro in one year be?
b.
If
the spot rate of the euro in one year is $1.00, what is strategy?
Beth¶s
percentage return from her
c.
If
Beth¶s
percentage return from her
the spot rate of the euro in one year is $1.08, what is strategy?
d. What must the spot rate of the euro be in one year for Beth¶s strategy to be successful?
25. Integrating IRP and IFE. Assume the following information is available for the U.S. and Europe:
U.S.
a.
3
Nominal interest rate
Europe
4%
6%
Expected inflation
2%
5%
Spot rate
-----
$1.13
One-year forward rate
-----
$1.10
Does IR P
hold?
b. According to PPP, what is the expected spot rate of the euro in one year? c. According to the IFE, what is the expected spot rate of the euro in one year? .
26. IRP. The I-year risk-free interest rate in M exico is 10 percent. The 1-year risk-free rate in the United States is 2 percent. Assume that interest rate parity exists. The spot rate o f the Mexican peso is $.14.
a. What is the forward rate premium? b. What is the 1-year forward rate o f the peso?
c. Based on the international Fisher effect, what is the expected c hange in the spot rate over the next year? d. If the spot rate changes as expected acco rding to the IFE, what will be the spot rate in 1 year?
e. Compare your a nswers to (b) and (d) and explain the relationship
20. Deriving Forecasts of the Future Spot Rate. As of today, assume the following information is available:
U.S. rate of interest required by investors Nominal interest rate Spot rate One-year forward rate
Mexico
R eal
4
2% 11% ² ²
2% 15%
$.20 $.19
a. Use the forward rate to forecast the percentage change in the Mexican peso over the next year.
b. Use the differential in expected inflation to forecast the percentage change in the Mexican peso over the next year.
c. Use the spot rate to forecast the percentage change in the Mexican peso over the next year.
35.
Implications of PPP. Today¶s spot rate of the Mexican peso is $.10. Assume that purchasing power parity holds. The U.S. inflation rate over this year is expected to be 7%, while the Mexican inflation over this year is expected to be 3%. Wake Forest Co. plans to import from Mexico and will need 20 million Mexican pesos in one year. Determine the expected amount of dollars to be paid by the Wake Forest Co. for the pesos in one year.
39.
PPP and Real Interest Rates. The nominal (quoted) U.S. one-year interest rate is 6%, while the nominal one-year interest rate in Canada is 5%. Assume you believe in purchasing power parity. You believe the real one-year interest rate is 2% in the U.S, and that the real one-year interest rate is 3% in Canada. Today the Canadian dollar spot rate at $.90. What do you think the spot rate of the Canadian dollar will be in one year?
