How would covered interest arbitrage impact the bond

Assignment Help Econometrics
Reference no: EM13223837

A 1 year US treasury bond yields 0.5% (0.005 as a decimal), and the 1-year euro bond rate is 1.0%. If the current spot rate is € .7565/ $ , and the current 1-year forward rate is €.7465, then which investment offers the highest return? How would covered interest Arbitrage impact the bond, spot and forward markets?

C=200 + .8YD

I= 500

G= 1100

NX=800 - 0.2Y

YD= Y - .25Y + 125

A) Find equilibrium Y in the basic Keynesian model.

B) What are the values of BS and NX at the equilibrium level of Y?

C) Find the value of savings at equilibrium Y.

Reference no: EM13223837

Questions Cloud

How can the multiplier have a negative effect : On the left tab under Publications, go to the Interactive Data Tables. Select National Income and Product Accounts. examine all four components of GDP (C, I, G, and Xn). Which of these four components of AD declined the most during the 2007 and 200..
Find out the equilibrium constant for the reaction : The equilibrium molar concentration of the FeNCS^2+ determined from a calibration curve, is 1.5 x 10^-4 mol/L. Calculate, in sequence each of the following quantities in the aqueous solution to determine the equilibrium constant for the reaction.
What is the average number of bags on hand : If holding costs were to increase by $9 per year, how much would that affect the minimum total annual cost?
Instrumental-informational-describe-emotional-social network : Describe these coping and support strategies: Instrumental-informational-Describe-emotional-social network
How would covered interest arbitrage impact the bond : A 1 year US treasury bond yields 0.5% (0.005 as a decimal), and the 1-year euro bond rate is 1.0%. If the current spot rate is € .7565/ $ , and the current 1-year forward rate is €.7465, then which investment offers the highest return
What an organization foundation is based on : Identify and explain what an organization's foundation is based on. In addition, describe two steps an organization can take if they truly want to increase employee morale.
What is the current multifactor productivity : What is the current multifactor productivity?
Instrumental-informational-esteem-emotional-social network : Instrumental-informational-esteem-emotional-social network
Explain moderately strong bonds to p- donor ligands : Comment on the following observation: in its complexes, Co(III) forms strong bonds to O- and N- donor ligands, moderately strong bonds to P- donor ligands

Reviews

Write a Review

Econometrics Questions & Answers

  Calculate the amount of cheese and the amount of cocoa

Casper consumes cocoa and cheese. Cocoa is sold in an unusual way. There is only one supplier, and the more cocoa you buy from him, the higher the price you have to pay per unit. In fact y units of cocoa will cost Casper y2 dollars.

  Calculate investment and equilibrium real interest rate

Where r = equal to Ecoland's real interest rate. Calculate, then explain, the following:  Private saving  Public saving  National saving  Investment  The equilibrium real interest rate The government uses the following equation for the investment fun..

  Calculate marginal rate of technical substitution of labor

a. Graph the short run total product curves for each production function for 0  L  25 in the case where K is fixed at 4. b. Graph the marginal product of labor curves for each production function for 1  L  25. c. Do these production functions exh..

  How does the deal impact the consumers opportunity set

A recent newspaper circular advertised the following special on tires: "Buy three, get the forth tire for free-limit one free tire per customer." If a consumer has $500 to spend on tires and other goods and each tire usually sells for $50.

  What must be the net value of hydrogen produced per year

A green algae, can produce hydrogen when temporarily deprived of sulfur for up to 2 days at a time. A company needs to purchase equipment costing $3.4 million. If the company wants to earn a rate of return of 20% per year and recover its investmen..

  What is the marginal rate of substitution at the optimum

Show a consumers budget constraint and indifferance curves for wine and cheese. Show the optimal consumption choice. If the price of wine is 3$ per glass and the price of cheese is $6 per pound, what is the marginal rate of substitution at the opt..

  What is the size of the welfare loss triangle

the equation of the supply curve is Ps=1+0.1*Qs and the equation for the demand curve is Pd=6-0.15*Qd. This results in an equilibrium price (Pe) of 3. This figure shows a regulated price (Pr) of 2, which results in the welfare loss triangle b + d,..

  Find the price below which the firm will go out of business

Office building maintenance plans call for the stripping, waxing, and buffing of ceramic floor tiles. This work is contracted out to maintenance firms, and both technology and labor requirements are very basic. Supply and demand conditions in this..

  For what values of x do all potential sellers sell the car

Suppose that everyone is risk neutral, potential car buyers value lemons at $1,000 and good used cars at $3,000, the reservation price of lemon owners is $750, and the reservation price of owners of high quality used cars $1,750.

  What return-interest rate are you earning on your bond

You purchased a $10,000.00 face value commercial bond for $9000.00 on June 1, 2007. The bond pays $500.00 interest at the end of each six months. It is now June 1, 2008. Thus, you have already received two $500.00 payments. The bond matures in fiv..

  What is the consumer surplus

Chell's demand function is P(ch) = 5-q(ch). Gordon's demand function is P(g)= 3-q(g). Draw the aggregate demand curve. What is the consumer surplus with the price is $2?

  What is the annual cost of the national park

A national park in California contains the tallest known redwood tree, as well as remnants of the coastal redwood ecotype that once dominated coastal California. The park does not receive many visitors; it has been estimated that no more than 5,00..

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