64 655
Assignments Done
99,2%
Successfully Done
In September 2018

Answer to Question #65145 in Finance for Luisa

Question #65145
Put yourself back in September 1993. Brazilian bond was paying a monthly interest rate of 36.9 percent. U.S. bond was paying monthly interest rate of 0.2 percent. The observed rate of appreciation of dollar against cruzeiro (the currency of Brazil at that time, now its currency is called real) in August was 34.6 percent. If we use this rate as the expected rate of appreciation for September, what are the expected one-month dollar rates of return on U.S. and Brazilian bond, respectively? Does the UIP hold in this case? If not, why?
Expert's answer
If Brazilian bond was paying a monthly interest rate of 36.9 percent and U.S. bond was paying monthly interest rate of 0.2 percent, but the observed rate of appreciation of dollar against cruzeiro was 34.6 percent, then the expected one-month dollar rates of return on U.S. and Brazilian bond are 0.2% and 36.9 - 34.6 = 2.3% respectively.

Need a fast expert's response?

Submit order

and get a quick answer at the best price

for any assignment or question with DETAILED EXPLANATIONS!

Comments

No comments. Be first!

Leave a comment

Ask Your question

Submit
Privacy policy Terms and Conditions