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Please Show All Work. Thank you 7. At the monthly horizon, investors considering investing in the Thai baht prior to its devaluation might assess the
Please Show All Work. Thank you
7. At the monthly horizon, investors considering investing in the Thai baht prior to its devaluation might assess the following probabilities: 10 with monthly probability 1 - p = .80 0 with me 4$$/T 5 $/T% |-14% with monthly probability p = 20 a) For discrete random variables, the expectation (or mean) is computed by weighting the outcomes by the probabilities. What is the expected percentage change in the dollar price of Thai baht? b) Suppose this expectation has been incorporated into the forward premium (or discount) on Thai baht: where F and S are in $/baht. If the spot exchange rate is .040 $/baht (25 baht/$, the former official fixed exchange rate), what is the forward rate in $/baht? In baht/$? c) Is the baht at a premium or a discount? What does this tell you about using forward rates as a signal of devaluation revaluation risk? 7. At the monthly horizon, investors considering investing in the Thai baht prior to its devaluation might assess the following probabilities: 10 with monthly probability 1 - p = .80 0 with me 4$$/T 5 $/T% |-14% with monthly probability p = 20 a) For discrete random variables, the expectation (or mean) is computed by weighting the outcomes by the probabilities. What is the expected percentage change in the dollar price of Thai baht? b) Suppose this expectation has been incorporated into the forward premium (or discount) on Thai baht: where F and S are in $/baht. If the spot exchange rate is .040 $/baht (25 baht/$, the former official fixed exchange rate), what is the forward rate in $/baht? In baht/$? c) Is the baht at a premium or a discount? What does this tell you about using forward rates as a signal of devaluation revaluation riskStep by Step Solution
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