Define how forecast the exchange rate, Financial Management

Assignment Help:

As of November 1, 1999, the exchange rate in between the Brazilian real and U.S. dollar is R$1.95/$. The agreement forecast for the U.S. and Brazil inflation rates for the next 1-year period is 2.6% and 20.0%, correspondingly. How would you forecast the exchange rate to be at just about November 1, 2000?

Solution: As the inflation rate is quite high in Brazil, we may make use of the purchasing power parity to forecast the exchange rate.

                    E(e)    = E(p$) - E(pR$)

                              = 2.6% - 20.0%

                              = -17.4%

                    E(ST)  = So(1 + E(e))

                              = (R$1.95/$) (1 + 0.174)

                              = R$2.29/$


Related Discussions:- Define how forecast the exchange rate

Introduction to mortgage-backed securities, A mortgage may be defined as a ...

A mortgage may be defined as a pledge of property to secure payment of a debt. Depending upon the terms of mortgage agreed upon between the lender and the borrower, mor

Valuing zero-coupon bond, As we know, zero-coupon bonds are issued wi...

As we know, zero-coupon bonds are issued without any periodic coupon payments. The investor gets the interest and the principal on a maturity date. The interest i

Explain how using a risk-adjusted discount rate, Explain how using a risk-a...

Explain how using a risk-adjusted discount rate improves capital budgeting decision making compared to using a single discount rate for all projects? The risk-adjusted discount

Evaluate alternative hedging strategies, Peak Inc. needs to order Canadian ...

Peak Inc. needs to order Canadian raw materials to use in its production process. The Canadian exporter typically invoices Peak in Canadian dollars. Assume that the current exchang

Methods of workers participation in management, Methods of workers particip...

Methods of workers participation in management: the various methods of workers participation in management are as follows: 1. Informative participation: it refers to sharing of

Short sales, Short sales  : Short sales of a security means borrowing o...

Short sales  : Short sales of a security means borrowing of an underlying security by an investor from other investors who are holding it (in Demat account) and selling it with

WACC, WHAT ARE THE MAIN VIEWS OF WACC PREVALENT IN THE FINANCIAL MANAGEMENT...

WHAT ARE THE MAIN VIEWS OF WACC PREVALENT IN THE FINANCIAL MANAGEMENT LITERATURE

Estimate working capital requirements, Q. Describes Working Capital. Briefl...

Q. Describes Working Capital. Briefly describe the techniques utilized in making working capital forecast or Estimating Working Capital Requirements? Ans:- Meaning of Wo

How is finance related to accounting and economics, How is finance related ...

How is finance related to the disciplines of accounting and economics? Financial management is fundamentally a combination of economics and accounting. First financial managers

Setting budget goals and objectives, Setting Budget Goals and Objectives: ...

Setting Budget Goals and Objectives: Having collected and analysed all relevant information, and made general forecasts as to the key areas of concern / opportunity and special

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd