Study Session 4: Economics for Valuation
In Example 3-Blue Box,pg 554 of Economics reading 11, Currency Exchange Rates: Understanding Equilibrium Value, current all-in bid rate for delivery of GBP against the CHF in three months for CHF/GBP currency pair is asked This is calculated by adding the forward points to the bid rate. But in part 2 of the question, the all-in rate to sell the CHF six months forward against the GBP is calculated by adding forward points to the ask rate. Why is that? I am confused.
One portion of the Regulatory Economics’ chapter is very unclear to me. Can someone please define and give examples on what are and what differentiate:
Independent regulators that are SROs
Independent regulators that are not SROs
SROs that are not independent regulators (are they “outside bodies” like FASB?)
Thank you all, and good luck to all of us preparing for Saturday’s exam!
Can someone be so kind to explain the differences between Flow supply/demand mechanism and Portfolio balance mechanism?
The below answer is confusing me. Is there a better way to go about this problem? Thanks!
Hi all, the question asks to calculate the USD/NZD spot price one year from now.
Bid ask USD/NZD= 0.6740 / 0.6770
1y Libor USD / NZD= 0.80% / 2%
The solution suggests to use the uncovered interest parity model:
in the solution they also say that USD is the foreign currency, therefore the solution is mid-price USD/NZD 0.6755 x (1.008/1.02) = 0.6766
Has anyone solved this question? Why is USD the foreign ccy?
Why is this sentence incorrect?
“Whenever the funding currency appears to be signigicantly overvalued according to PPP. the position should be reversed”
A bit confused regarding the explanation of pure monetary model in the CAFI,
I will recap the reasons for widening a bid and ask spreads below, if there are other reasons or if I’m mistaken in one of them, please add your comment;
1. Lack of Liquidity
2. Economic Crisis
3. Small sized transactions
I keep getting questions on covered/uncovered interest rate parity wrong. Does anyone know a simple way to distinguish between the two?
Does anyone know the answer to this question?
Spot JPY/USD exchange rate = 120
Spot EUR/USD exchange rate = 0.7224
US risk free rate = 7%
Eurozone risk free rate = 9.08%
Japanese risk free rate = 3.88%
Yield curves in all three currencies are flat
Question: According to the uncovered interest rate parity, in 12 months, the JPY/USD exchange rate would most likely be:
The answer is A using this formula 120*(1.0388)/(1.07) = 116.50