The country I choose is Japan
International Finance Project Part II 1. Fisher Effect 1) Check the money market rate (one year government security) of Uss and your currency in year 2014 and 2015. Make comparison. 2) Find the inflation rates of US and your country in year 2014 and 2015. Make comparison. 3) Use the above information to test Fisher Effect for both year 2014 and year 2015. Note: Fisher Effect explains relationship between normal interest rate, real interest rate and expected inflation. 1 is" (1 +ps) x E(1 TS) 2. Relative PPP. Use information in 1.1 and he information from Part I question 5-2 to test relative purchase power parity. Does it hold for year 2014 and year 2015? Note: Relative PPP states that the rate of change in the exchange rate is equal to differences in the rates of inflation. 3. International Fisher Effect. Use above information and the information from Part I question 5-2 to test Intermational Fisher Effect. Does it hold for year 2014 and year 2015? Note: The relationship between the percentage change in the spot exchange rate over time and the differential between comparable interest rates in different national capital markets is known as the international Fisher effect 4. Forward Rate and Interest Rate Parity 1) Does forward market exist on your currency against US Dollar and/or other major currencies? Find the one year forward rate at the beginning of year 2014 and 2015. 2) Compute the difference between forward rate and spot rate. Is it a premium or discount at the beginning 2014 2015? 3) Use above results and information from question I to check if interest rate parity holds for year 2014 and 2015. Note: Interest Rate Parity explains relationship of relative interest rate and the forward premium or discount. 5. Future and option. Does future or option market exist for your currency? Please provide one example of a future or option quote. International Finance Project Part II 1. Fisher Effect 1) Check the money market rate (one year government security) of Uss and your currency in year 2014 and 2015. Make comparison. 2) Find the inflation rates of US and your country in year 2014 and 2015. Make comparison. 3) Use the above information to test Fisher Effect for both year 2014 and year 2015. Note: Fisher Effect explains relationship between normal interest rate, real interest rate and expected inflation. 1 is" (1 +ps) x E(1 TS) 2. Relative PPP. Use information in 1.1 and he information from Part I question 5-2 to test relative purchase power parity. Does it hold for year 2014 and year 2015? Note: Relative PPP states that the rate of change in the exchange rate is equal to differences in the rates of inflation. 3. International Fisher Effect. Use above information and the information from Part I question 5-2 to test Intermational Fisher Effect. Does it hold for year 2014 and year 2015? Note: The relationship between the percentage change in the spot exchange rate over time and the differential between comparable interest rates in different national capital markets is known as the international Fisher effect 4. Forward Rate and Interest Rate Parity 1) Does forward market exist on your currency against US Dollar and/or other major currencies? Find the one year forward rate at the beginning of year 2014 and 2015. 2) Compute the difference between forward rate and spot rate. Is it a premium or discount at the beginning 2014 2015? 3) Use above results and information from question I to check if interest rate parity holds for year 2014 and 2015. Note: Interest Rate Parity explains relationship of relative interest rate and the forward premium or discount. 5. Future and option. Does future or option market exist for your currency? Please provide one example of a future or option quote
