Question
1. How do foreign exchange market conditions affect domestic security market decisions? Provide example. 2. Assume that a country suddenly experiences unexpected inflation. How could
1. How do foreign exchange market conditions affect domestic security market decisions? Provide example.
2. Assume that a country suddenly experiences unexpected inflation. How could this affect the value of the countrys local currency according to purchasing power parity (PPP) theory?
3. Assume the following information: Swiss one-year interest rate = 8%, U.S. one-year interest rate = 5%, Franc spot rate = 0.12 USD/CHF, Franc forward rate = 0.08 USD/CHF. If interest rate parity exists, how do you take advantage of this opportunity? Explain.
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