Question
Suppose the rate of appreciation of the Japanese yen against the Mexican peso, s ( t +1 , MXN/JPY ) is normal distributed N (0
- Suppose the rate of appreciation of the Japanese yen against the Mexican peso, s(t+1, MXN/JPY ) is normal distributed N (0.0624, 0.1572).
Present the probability distribution (the bell curve, also called the density function) for s(t+1, MXN/JPY ) in a figure (see Exhibit 3.3 of the textbook for a similar illustration).
Todays spot rate is S(t, MXN/JPY ) = 0.13648. Then the next periods spot rate, S(t+1, MXN/JPY ) is normal distributed N (, 2). What is equal to and what is equal to? Present the probability distribution (the bell curve also called the density function) for S(t + 1, MXN/JPY ) in a figure. What is the probability that S(t + 1, MXN/JPY ) < 0.1222?
Suppose the interest rate for one period (from t to t + 1) is iJP Y = 2% in Japan and iMXN = 5% in Mexico. What must the forward rate F (t, MXN/JPY ) then be? Does the Unbiasedness Hypothesis hold in this case?
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