Define the implications of the interest rate parity, Financial Management

Assignment Help:

Discuss the implications of the interest rate parity for the exchange rate determination.

Answer: Presume that the forward exchange rate is roughly an unbiased predictor of the future spot rate, IRP can be illustrated as:

          S = [(1 + I£)/(1 + I$)]E[St+1|It].

So the exchange rate is determined by the relative interest rates, and the supposed future spot rate, conditional on all the accessible information, It, as of the present time. So, one can say that expectation is self-fulfilling. As the information set will be constantly updated as news hit the market, the exchange rate will show a highly dynamic, random behavior.


Related Discussions:- Define the implications of the interest rate parity

Explain the term- administration of decisions, Explain the term- administra...

Explain the term- administration of decisions Conformance, compliance and efficiency This is focussed on the "administration of decisions" . Processes and procedures m

George thomas, which type of financing is appropriate to each firm

which type of financing is appropriate to each firm

Homework, Homework 1. Suppose you deposit $18,000 into an account today th...

Homework 1. Suppose you deposit $18,000 into an account today that earns 6% interest per year, and you do not withdraw the money for 21 years. What will be the balance in the acco

Unity of command, Unity of Command Unity of command is the principle in...

Unity of Command Unity of command is the principle in which each subordinate should be responsible to only one manager.

Evaluate annual compound interest, Question : (a) A company wants to pu...

Question : (a) A company wants to purchase a plant for its expanding operations. The desired plant is available at Rs 300,000 in cash. Alternatively, the company has the option

Describe the sales forecasting process, Describe the sales forecasting proc...

Describe the sales forecasting process. It is a group effort. Sales and marketing personnel generally offer assessments of demand and the competition. Production personnel genera

Relationship between bond price and time, Relationship between Bond Price a...

Relationship between Bond Price and Time   (If Interest Rates are Constant) The bond price changes as the bond moves closer to its maturity. If the bond is quoted

Calculate rate of return on investment in terms of us dollar, Mr. James K. ...

Mr. James K. Silber, an avid international investor, just sold a share of a French company, for FF50. The share was bought for FF42 a year ago. The exchange rate is FF5.80 each U.S

Balance sheet, Balance Sheet: The balance sheet measures the financial ...

Balance Sheet: The balance sheet measures the financial position of the business at a particular point in time.  It is also called Statement of Financial Position. The balan

What do you mean by pension funds, What do you mean by pension funds? ...

What do you mean by pension funds? Pension funds: Pension funds give retirement income (as the form of annuities) to workers covered through a pension plan. They get cont

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