Part 11 Marks 60 Which of the following condition? A: Spot and forward exchange rates tend to 1. statements is correct regarding the covered interest parity with the interest differential. Th diverge, in general, to be precisely in line e domestic interest rate must be higher or lower than the foreign interest rate by the extent the domestic currency is anticipated to Th depreciate or appreciate. e domestic interest rate must be lower (higher) than the foreign interest rate A and C are correct. at has an annual interest rate of 5% rather than a comparable British bond that has by the extent the domestic currency sells at a discount (premium). All of the above statements are correct D: E: According to the international Fi bond th an annual interest rate of 6%, then the investor must be expecting the 2. sher Effect, if an investor purchases a five-year U.S. at a rate of at least 1% per year over the next 5 years. A: British pound; appreciate B: British pound; revalue C: U.S. dollar; appreciate D: U.S. dollar; depreciate 1 Cecisti ne ollaprealu A: the domestic interest rate is higher than the foreign interest rate. 3. A decision to hedge receivables in the money market will be taken if: B: C: D: the domestic interest rate is lower than the foreign interest rate. the interest parity forward rate is higher than the expected spot rate. the interest parity forward rate is lower than the expected spot rate. E: the interest parity forward rate is equal to the expected spot rate. 4. At the beginning of 2002 the AUD/USD exchange rate was 1.9585 and the 2002 inflation rates were 3.30% for Australia and 2.33% for the US. What should the AUD/USD exchange rate have been at the end of2002, according to the approximate calculation of Relative PPP theory? A USD/AUD 0.5068 B: AUD/USD 1.9736 C: AUD/USD 1.9775 D: USD/AUD 1.8769 E: USD/AUD 0.8467