1. Assume Switzerland has a one-year interest rate of 3% and that of Ghana is 25%. If the International Fisher Effect (IFE) holds, what would your forecast of the price of Swiss franc in cedis in one year?Assume that the initial exchange rate is GHS5.52 to the Swiss franc.

1. Assume inflation rate in Ghana is 17% per annum and that of Nigeria is 9% per annum. Assuming an initial exchange rate of Naira66.84/cedi, what should be the exchange rate one year from now if purchasing power parity (PPP) applies?

1. Assume that the Ghanaian inflation rate is expected to average about 15% annually, while the Nigerian inflation rate is expected to average about 9% per annum. If the current spot rate between the naira and cedi is N66.84/GHS, what is the expected spot rate between the two currencies in two years? Assume PPP holds.

1. A laptop computer costs 1,100 in Europe. The same computer costs GH1,540 in Ghana. If we assume that the law of one price (LOP) holds, what is the spot exchange rate between the GH and the euro?

1. Assume there exists a forward foreign exchange market in Ghana and that the following information concerns this market

Ghana UK

90-day interest rates 23% p.a.?

Spot rate 1.7500/

90-day forward rate1.8000/

Calculate UK 90-day interest rate per annum based on the information above.

6.Assume the following exchange rates exist today

1 =$1.50

C$ =$.75

1 = C$2

Assuming no transaction costs, can triangular arbitrage be used to earn a profit? Please explain.

Bid price of NZ$

Ask price of NZ$

Bank X

$0.401

$0.404

Bank Y

$0.398

$0.400

Given the above information, is locational arbitrage possible? If so, explain the steps involved in locational arbitrage, and compute the profit from this arbitrage if you had $1,000,000. Further to this question, explain the market forces which will occur to eliminate any further possibilities of locational arbitrage.

Quoted Price

Value of Canadian dollar in US dollars

$0.9

Value of New Zealand dollar in US dollars

$0.3

Value of Canadian dollar in New Zealand dollars

NZ$3.02

Given the above information, is triangular arbitrage possible? If so, explain the steps that would reflect triangular arbitrage, and compute the profit from this strategy if you had $1,000,000 to use. Further to the question, what market forces would occur to eliminate any further possibilities of triangular arbitrage?

1. The following quotes for the Canadian dollar (CAD), US dollars (USD) and the Mexican pesos (MXN) are observed on the international currency market. Assess if there is a triangular arbitrage opportunity. Show how you will exploit it with an amount of $1,000,000 if there is any such opportunity.

CAD 1.419/USD

MXN 6.4390/CAD

MXN 8.7535/USD

1. Assume inflation rate in Ghana is 15% per annum and that of Europe which Ghana trades with is 5% per annum. If the current exchange rate is GHS6.145/, what is the expected price of the euro in cedis one year from now? If in the second year Europe experiences a higher inflation rate of 7% whilst the Ghana inflation rate remains the same at 15% p.a., what would be the price of the euro in cedis at the end of the second year?

1. Assume that the spot exchange rate of the British pound is $1.2730. How will this spot rate adjust according to PPP if the United Kingdom experiences an inflation rate of 7% while the United States experiences an inflation rate of 2%?

1. Assume that the spot exchange rate of the Singapore dolar is $0.70. The one-year interest rate is 11 percent in the United States and 7% in Singapore. What will the spot rate be in one year according to the IFE? What is the force that causes the spot rate to change according to the IFE?

1. Assume the following information is available for the United States and Europe

US

Europe

Nominal interest rate

4%

6%

Expected inflation

2%

5%

Spot rate

-

$1.13

One-year forward rate

-

$1.10

a.Does IRP hold?

b.According to PPP, what is the expected spot rate of the euro in one year?

c.According to the IFE, what is the expected spot rate of the euro in one year?

14.A consultant using three different methods to forecast the value of the cedi vis a vis the dollar in 90 days

MethodForecast valueWeight of method

Fundamental 5.39/$55%

Technical5.56/$35%

Market based5.20/$10%

Use the mixed forecasting method to find the December estimated value of cedi in relation to the dollar.