Country Annual inflation rate Spot rate USA 3% N/A UK 4.2% 1.62 Substituting the values in the purchasing power parity formula Forward rate = ( 1 + 0.042 ) x 1.62 1 + 0.030 Forward rate = 1.639 Answer 2 The appreciation / (Depreciation) in the British pound using the interest rate parity theory is as follows Country Spot rate One year forward rate Appreciation / (Depreciation) Percentage UK 1.62 1.633 0.013 0.80% The appreciation / (Depreciation) in the British pound using the purchasing power parity theory is as follows Country Spot rate One year forward rate Appreciation / (Depreciation) Percentage UK 1.62 1.639 0.019 1.17% Answer 3 The forecasted forward rate using both interest rate parity theory and the purchasing power parity theory appears to be an unbiased estimate of the future spot rate of the currency. Interest rate is a very important factor in determining the relative exchange rate in an economy and in most countries the Federal Reserve and Central Banks publish the forward exchange rates of the foreign currencies using the prevailing interest rate in the economy. Similarly, the forecast of rate using the purchasing power parity theory can also be concluded as the unbiased estimation of the forward rate. Answer 4 According to the interest rate parity theory, the difference between the interest rate of two countries is equal to the differential between the forward exchange rate and the spot exchange rate of two countries. In the current global economy, interest rate parity theory plays a great part in connecting the interest rates and exchange rates of two countries. The origin of this theory can be associated to an article written by Walther Lotz in 1884 which was concerned with the Vienna forward market. In 1927, another renowned economist Keynes pointed out the fact that forward premiums are affected by the relative interest differential. There are certain assumptions which need to be considered. The securities, both domestic and foreign, are considered to be identical in terms of maturity time and risk. It is the prevailing interest rate on these securities that is utilized in the interest rate parity calculation. In addition, it is also assumed that there are no capital controls or transaction cost and market imperfections. Purchasing power parity theory is another theory widely used in determining the forward rates of a particular currency. As per this theory, when a country’s inflation rate rises, the demand for its currency declines as its exports also declines due to the higher prices. As a corresponding impact, the importers and firms in that country start putting more emphasis on the imported goods and other items. These two factors in combination cast a downward impact on the high inflation of a country’s currency. Inflation rates do not remain constant between countries which cause international trade patterns and exchange rates to adjust accordingly. There are two forms of purchasing power parity theory. One is absolute form and the other is relative form. The
Answer 1. The forward exchange rate of any currency can be determined using the interest rate parity theory formula which is as follows Fr = 1 + Ro Sr 1 + Rd Where Fr is the theoretical parity forward rate which is being determined Sr is the current spot rate Ro is the prevailing interest rate of the overseas country; and Rd is the prevailing interest rate of the domestic country…
As brought out in the case example, IT systems security is seen to be something that can bring about exposure of sensitive company information and also that of some of the employees. At the same time an employee who has been terminated from the firm may feel to a greater extent disgruntled and use the information at his or her disposal very much top the detriment of the firm that has fired him or her.
The tasks relating to management of an organisation have become more complex comparing to traditional organisational concept. Many critics have defined this modern period as ‘Post-Modern’, because there have been significant changes in the human activities and their thought processes.
Essay 2: Analytical Comparison and Contrast The process of analyzing similarities and differences between two similar items unearth some hidden or unnoticed facts on the same. Besides, the foretold process between two similar items (say two Artworks) is difficult because it is a tiresome task.
The activity coordinators shall be linking with the human actors within the use case diagram. The people coordinating the company activities shall become central to the entire operation of the company. This diagram shall present a breakdown of the various activities involved in the entire operation.
The process of ecotourism is significant to effectuate the ecological cycle, which improves lives of the people and the living of organisms (Diamantis, 2004). The motive behind ecotourism is to prosper the socio-cultural, economic and environmental conditions of people associated with ecotourism.
In today's market driven economy concept, the art of communication to existing consumers as well as prospective consumers takes a great deal out of the managerial brain storming sessions. The communication is said to be successful if 'a customer goes to buy the shoes of a particular brand, not for keeping his feet warm and dry but because the shoes make him/ her feel masculine/ feminine, rugged, young, glamorous etc.' The marketing team is supposed to thoroughly understand the customer's needs, buying habits and then plan the launch of the product in the appropriate market with.
Thus in order to understand the human behavior completely, the motivational process must be analyzed.
Motivation has come from motives, which are the expression of human needs by a human being. In fact, the activities of human beings are caused, and behind every action there is a particular motive or need.
The Chinese administration is actively engaged and committed towards development of Early Childhood Schools, and has focused upon enhancement of analytical skills of the children. The English society is old and educated society, the concept of Early Childhood education is not a new initiative.
R program has been used to give the graphical output, as well as carrying out computations. R is an open source programming language and software environment for statistical computing and graphics. The R language
Through the reliance on air pressure and steam, Heron was able to construct items which were mostly appreciated as toys as they did not have industrial or commercial use at the time of invention. However, some of the toys that Heron made include the fountain
2 pages (500 words)Coursework
Got a tricky question? Receive an answer from students like you!Try us!
Let us find you another Coursework on topic Analytical Application Coursework for FREE!