Ch 20 International Parity

Ch 20 International Parity - $1.6068 $1.5780 Method 2 =...

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System of Four Parity Conditions Inputs Spot Exchange Rate (€1 =) $1.2830 US Riskfree Rate (Annual) 3.61% US Inflation Rate 2.69% Outputs 4 (4) International Fisher Effect Eurozone Riskfree Rate (Annual) 5.39% 5.39% (1) Interest Rate Parity Forward Exchange Rate (€1 =) $1.3050 (2) Expectations Theory of Exchange Rates $1.3050 (3) Purchasing Power Parity Eurozone Inflation Rate 4.45% Four Parity Conditions expressed as One Percent Difference equals Another Percent Difference 1.72% 1.72% 1.72% 20.2 I NTERNATIONAL P ARITY Expected Future Spot Exchange Rate (€1 =) Eurozone Riskfree Rate % Difference Forward Exchange Rate % Difference Expected Future Spot Exchange Rate % Difference
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1.72% Eurozone Inflation Rate % Difference
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Estimating Future Exchange Rat Inputs Spot Exchange Rate (€1 =) $1.7271 US Riskfree Rate (Annual) 6.31% US Inflation Rate 4.52% Eurozone Riskfree Rate (Annual) 3.15% Eurozone Inflation Rate 2.65% Forward Exchange Rate (€1 =) $1.8241 Outputs Years 0 1 2 3 4 5 Method 1 = Purchasing Power Parity -1.79% Exp Fut Spot Exch Rates (€1 =) $1.7271 $1.6962 $1.6659 $1.6360
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Unformatted text preview: $1.6068 $1.5780 Method 2 = Interest Rate Parity + Expectations Theory of Exchange Rates-2.97% Forward Exchange Rate (€1 =) $1.7271 $1.6758 $1.6260 $1.5776 $1.5307 $1.4852 $1.7271 $1.6758 $1.6260 $1.5776 $1.5307 $1.4852 Method 3 = Expectations Theory of Exchange Rates 5.62% $1.7271 $1.8241 $1.9265 $2.0347 $2.1490 $2.2697 20.2 I NTERNATIONAL P ARITY Eurozone Inflation Rate % Difference Eurozone Riskfree Rate % Difference Expected Future Spot Exchange Rates (€1 =) Forward Exchange Rate % Difference Expected Future Spot Exchange Rates (€1 =) tes System of Four Parity Conditions 20.2 I NTERNATIONAL P ARITY C HART 1 2 3 4 5 $0.0000 $0.5000 $1.0000 $1.5000 $2.0000 $2.5000 20.2 Estimating Future Exchange Rates Method 1 = Purchasing Power Parity Method 2 = Interest Rate Parity + Expecta-tions Theory of Ex-change Rates Method 3 = Expecta-tions Theory of Ex-change Rates This graph shows the expected future spot exchange rates for all three methods used....
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