Hey there! Sign in to join this conversationNew here? Join for free
    • Thread Starter
    Offline

    0
    ReputationRep:
    Hey

    Can anyone help me out with this question from a past paper on IFE? I can't figure out how to actually use the formula: :confused:

    (S1/S0) = (1+ih)/(1+if) for a single period

    ih = interest rate in home currency
    if = interest rate in foreign currency
    S0 = spot exchange rate at the beginning of the period
    St = spot exchange rate at the end of the period

    And the question is:
    Suppose that in Japan the nominal interest rate is 8% and inflation is expected to be 3%. Meanwhile, the expected inflation rate in the Eurozone is 12%, and the nominal British interest rate is 12%. Assume that the current exchange rate is 0.94 £/€.
    What is your best estimate of the exchange rate at which the pound will be selling relative to the Euro in one year's time?

    Thanks so much!!
 
 
 
  • See more of what you like on The Student Room

    You can personalise what you see on TSR. Tell us a little about yourself to get started.

  • Poll
    Brussels sprouts
  • See more of what you like on The Student Room

    You can personalise what you see on TSR. Tell us a little about yourself to get started.

  • The Student Room, Get Revising and Marked by Teachers are trading names of The Student Room Group Ltd.

    Register Number: 04666380 (England and Wales), VAT No. 806 8067 22 Registered Office: International House, Queens Road, Brighton, BN1 3XE

    Quick reply
    Reputation gems: You get these gems as you gain rep from other members for making good contributions and giving helpful advice.