Examples Use the G20 macro data on Oct. 20, 2020 from the Economist to answer the following questions: 1) Current spot rates. What are the current spot rate exchange rate for the following cross-rates: a. South Korean won/US dollar. b. Turkey lira/US dollar South Korean won/Turkey lira 1,142 7.89 144.74 won/lira C. 2) PPP forecast. Using the theory of PPP, and assuming that forecasted changes in consumer prices are the best measures of expected inflation, forecast the following spot exchange rates one year into the future: SK inflation 0.005 0.117 0.011 Formula: RPPP Turkey US . S2 spot rate S1 1,142 7.89 144.74 a. South Korean won/US dollar. b. Turkey lira/US dollar c. South Korean won/Turkey lira - 1135.2 8.72 130.23 3) Use the spot rates and 90-day market interest rates listed, calculate the 90-day forward rates for the following exchange rates: 3-mon interest rate (annual) 0.0065 0.14 0.0021 90-day rate 0.001625 0.035 0.000525 Formula: IRP . SK Turkey US F(90-day) 1143.3 8.16 140.07 S1 1,142 7.89 144.74 South Korean won/US dollar. b. Turkey lira/US dollar c. South Korean won/Turkey lira 4) Misery Index = inflation + unemployment rate. Calculate Misery Indices for the U.S., South Korea, and Turkey. Use the misery indices as alternatives to forecast the following exchange rates one year into the future: SK Turkey US Inflation 0.005 0.117 0.011 Unempl rate 0.079 0.134 0.036 MI 0.084 0.251 0.047 Formula: RPPP, replace inflation rate with the respective misery index. S2 a. South Korean won/US dollar. b. Turkey lira/US dollar c. South Korean won/Turkey lira S1 1,142 7.89 144.74 1182.36 9.43 125.42 Examples Use the G20 macro data on Oct. 20, 2020 from the Economist to answer the following questions: 1) Current spot rates. What are the current spot rate exchange rate for the following cross-rates: a. South Korean won/US dollar. b. Turkey lira/US dollar South Korean won/Turkey lira 1,142 7.89 144.74 won/lira C. 2) PPP forecast. Using the theory of PPP, and assuming that forecasted changes in consumer prices are the best measures of expected inflation, forecast the following spot exchange rates one year into the future: SK inflation 0.005 0.117 0.011 Formula: RPPP Turkey US . S2 spot rate S1 1,142 7.89 144.74 a. South Korean won/US dollar. b. Turkey lira/US dollar c. South Korean won/Turkey lira - 1135.2 8.72 130.23 3) Use the spot rates and 90-day market interest rates listed, calculate the 90-day forward rates for the following exchange rates: 3-mon interest rate (annual) 0.0065 0.14 0.0021 90-day rate 0.001625 0.035 0.000525 Formula: IRP . SK Turkey US F(90-day) 1143.3 8.16 140.07 S1 1,142 7.89 144.74 South Korean won/US dollar. b. Turkey lira/US dollar c. South Korean won/Turkey lira 4) Misery Index = inflation + unemployment rate. Calculate Misery Indices for the U.S., South Korea, and Turkey. Use the misery indices as alternatives to forecast the following exchange rates one year into the future: SK Turkey US Inflation 0.005 0.117 0.011 Unempl rate 0.079 0.134 0.036 MI 0.084 0.251 0.047 Formula: RPPP, replace inflation rate with the respective misery index. S2 a. South Korean won/US dollar. b. Turkey lira/US dollar c. South Korean won/Turkey lira S1 1,142 7.89 144.74 1182.36 9.43 125.42
