interest rate parity

Interest rate parity

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Unformatted text preview: Interest Rate Parities FBE 436 Professor Aris Protopapadakis 1 Key Concepts and Skills What are the links between interest rates in different currencies? $-Equivalent returns Calculation UIRP –Uncovered Interest Rate Parity Interpretation, empirical relevance CIRP –Covered Interest Rate Parity Interpretation, empirical relevance 3 HK$/US$ $/Euro 1.60 7.83 1.50 7.82 1.40 7.81 1.30 7.80 7.79 1.20 7.78 1.10 7.77 1.00 7.76 0.90 7.75 8 Ju n-0 8 Ju n-0 9 D ec -0 99 Ju n-0 0 D ec- -0 0 Ju n-0 1 D ec01 Ju n-0 2 D ec -0 2 Ju n-0 3 De c-0 3 Ju n-0 4 D ec04 Ju n-0 5 D ec -0 5 Ju n-0 6 De c-0 6 Ju n-0 7 D ec07 7.74 D ec -9 9 Ju n-0 0 D ec- D ec 00 Ju n-0 1 D ec -0 1 Ju n-0 2 D ec -0 2 Ju n-0 3 De c-0 3 Ju n-0 4 De c-0 4 Ju n-0 5 D ec -0 5 Ju n-0 6 D ec -0 6 Ju n-0 7 De c-0 7 Ju n-0 8 De c-0 8 Ju n-0 9 0.80 Bolivar/US$ Yen/US$ 140 2.3 135 2.1 130 1.9 125 1.7 120 1.5 115 1.3 110 1.1 105 0.9 100 7 08 -0 9 Ju n D ec- 6 -0 7 -0 8 -0 Ju n Ju n De c-0 D ec 4 05 -0 6 Ju n -0 4 2 3 -0 5 Ju n D ec- De c-0 Ju n De c-0 01 -0 3 Ju n -0 1 0 -0 2 Ju n D ec- De c-0 -9 Ju n Ju n D ec D D ec -9 9 Ju n-0 0 e c00 Ju n-0 1 D e c01 Ju n-0 2 D e c02 Ju n-0 3 De c-0 3 Ju n-0 4 De c-0 4 Ju n-0 5 D ec -0 5 Ju n-0 6 D ec -0 6 Ju n-0 7 D ec -0 7 Ju n-0 8 De c-0 8 Ju n-0 9 9 0.5 -0 0 0.7 90 De c-0 95 8 1 The Euro Monthly Growth Rates Annualized (US$ Appreciation is +) 80% 60% 40% 20% 0% -20% -40% -60% -80% 00 nJa 0 01 l-0 nJu Ja 2 03 l-0 nJu Ja 1 02 l-0 nJu Ja 3 04 l- 0 nJu Ja 4 05 l- 0 nJu Ja 5 06 l-0 nJu Ja 6 07 l- 0 nJu Ja 7 08 l- 0 nJu Ja 8 09 l- 0 nJu Ja 9 l- 0 Ju 9 The Hong Kong $ Monthly Growth Rates Annualized (US$ Appreciation is +) 6% 4% 2% 0% -2% -4% -6% 00 nJa 0 01 l- 0 nJu Ja 1 02 l-0 nJu Ja 2 03 l- 0 nJu Ja 3 04 l- 0 nJu Ja 4 05 l-0 nJu Ja 5 06 l- 0 nJu Ja 6 07 l- 0 nJu Ja 7 08 l- 0 nJu Ja 8 09 l- 0 nJu Ja 9 l- 0 Ju 10 The Yen Monthly Growth Rates Annualized (US$ Appreciation is +) 80% 60% 40% 20% 0% -20% -40% -60% -80% 00 nJa 0 01 l-0 nJu Ja 1 02 l- 0 nJu Ja 2 03 l-0 nJu Ja 3 04 l- 0 nJu Ja 4 05 l- 0 nJu Ja 5 06 l- 0 nJu Ja 6 07 l- 0 nJu Ja 7 08 l- 0 nJu Ja 8 09 l- 0 nJu Ja 9 l- 0 Ju 11 2 The Venezuelan Bolivar Monthly Growth Rates Annualized (US$ Appreciation is +) 200% 150% 100% 50% 0% -50% -100% 00 nJa 0 01 l-0 nJu Ja 1 02 l- 0 nJu Ja 2 03 l-0 nJu Ja 3 04 l- 0 nJu Ja 4 05 l-0 nJu Ja 5 06 l- 0 nJu Ja 6 07 l- 0 nJu Ja 7 08 l- 0 nJu Ja 9 l- 0 Ju 8 09 l-0 nJu Ja 12 Int’l Interest Rates How are interest rates in different currencies related? Can these differences be exploite...
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This note was uploaded on 01/16/2010 for the course FBE 436 at USC.

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