a) Using the following information, determine each one of the theoretical Exchange Rates(E.R.) according to International Fisher Effect.b) Show how Money Market Arbitrage could be done assuming that the loan is 1,000 units ofthe currency of the country where the loan is contracted. Determine the profit in the currency inwhich the loan was contracted.ΜARKETΜARKETE.R.E.R.COUNTRYCURRENCYINTERESTDec-01Dec-02Dec-02MexicoMXP12 %19.5620.15TurkeyTRY (Lira)6 %5.94196.07673AustraliaAUD4 %1.77591.81183JаpanJPY8 %105.866113.978UnitedGBP5 %0.59910.617849Kingdom (UK)South KoreaKRW (Won)9%1,658.621,793.37CanadaCAD5 %1.37361.4942U.S.A..USD3%

International Fisher Effect is a concept which determines the expected changes in future exchange…

a) Using the following information, determine each one of the theoretical Exchange Rat (E.R.) according to International Fisher Effect. b) Show how Money Market Arbitrage could be done assuming that the loan is 1,000 units the currency of the country where the loan is contracted. Determine the profit in the currency which the loan was contracted. ΜARKET ΜARKET E.R. E.R. COUNTRY CURRENCY INTEREST Dec-01 Dec-02 Dec-02 Mexico МХР 12 % 19.56 20.15 Turkey TRY (Lira) 6 % 5.9419 6.07673 Australia AUD 4 % 1.7759 1.81183 Japan JPY 8% 105.866 113.978 United GBP 5 % 0.5991 0.617849 Kingdom (UK) South Korea KRW (Won) 9 % 1,658.62 1,793.37 Canada CAD 5 % 1.3736 1.4942 U.S.A.. USD 3 %

a) Using the following information, determine each one of the theoretical Exchange Rat (E.R.) according to International Fisher Effect. b) Show how Money Market Arbitrage could be done assuming that the loan is 1,000 units the currency of the country where the loan is contracted. Determine the profit in the currency which the loan was contracted. ΜARKET ΜARKET E.R. E.R. COUNTRY CURRENCY INTEREST Dec-01 Dec-02 Dec-02 Mexico МХР 12 % 19.56 20.15 Turkey TRY (Lira) 6 % 5.9419 6.07673 Australia AUD 4 % 1.7759 1.81183 Japan JPY 8% 105.866 113.978 United GBP 5 % 0.5991 0.617849 Kingdom (UK) South Korea KRW (Won) 9 % 1,658.62 1,793.37 Canada CAD 5 % 1.3736 1.4942 U.S.A.. USD 3 %

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter29: International Finance

Section: Chapter Questions

Problem 8P

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