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Q3 (28%) (a) The following exchange rates and interest rates are observed for two countries Country A and Country B at the beginning (January 1st)
Q3 (28%) (a) The following exchange rates and interest rates are observed for two countries Country A and Country B at the beginning (January 1st) of Year 2016, 2017, 2018, 2019, 2020, and 2021. Both the spot and one-year forward exchange rates are expressed with Country A's currency as the unit of denomination. That is, they are values of one unit of Country Bs currency in terms of Country A's currency. All the interest rates are one-year interest rates observed at the beginning of the respective year. If IFE, IRP, and UFR are satisfied, what are the missing values a to i? You need to show and explain your calculations in arriving at the answers. In answering this question, you assume the realized spot exchange rates are indeed the respective expected spot exchange rates. Observation date Spot exchange rate 1.4500 b d 1.3983 One-year forward exchange rate a 1.4239 1.3983 January 1, 2016 January 1, 2017 January 1, 2018 January 1, 2019 January 1, 2020 January 1, 2021 One-year interest rate Country A Country B 4.20% 4.80% 3.90% 5.60% 3.50% 5.90% h 6.20% 3.10% 6.20% e g 1.3293 1.3293
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