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exchange rate-1

exchange rate-1 - To forecast the 1-year spot rates based...

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To forecast the 1-year spot rates based on inflation and interest rates we started with the current exchange rate and then found the previous year’s inflation and interest rate for each country. We found that the interest rates for all countries were the same throughout the last year; this means that there will be no difference between the 30, 60, and 90-day spot rates so we just forecasted one rate. The process used to forecast both 1-year spot rates is as follows: Take the current rate and multiply them by the interest or inflation rate for one year from now. Those two numbers in the future should still equal each other based on the PPP. Now divide the new rates to find the new 1-year spot rate. This is the same process for both inflation and interest. Current Annual Inflation Rate Inflated 1-Year Future Spot Rate Dollar 1 1.64 1.0164 80.90 yen/dollar Yen/Dollar 83.049 -0.99 82.227 Euro 1 2.2 1.022 1.361 \$/€ Dollar/Eur o 1.36858 1.64 1.391 Current Annual Interest Rate Dollar 1 0.25% 1.0025 82.84189526 Yen/Dollar 83.049 0.00% 83.049 Euro 1 1.00% 1.01 1.358417277 Dollar/Eur o 1.36858 0.25% 1.372001 To forecast the 30, 60, and 90 day spot rates, we continued to use historical data.

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