【文章內(nèi)容簡介】 way is to ask them, using a survey, but they may not say exactly what they really think. Another way is to examine the actual uncovered interest differential after we know what the future spot exchange rate actually turns out to be, and see whether the statistical characteristics of the actual uncovered differential are consistent with an expected uncovered differential of about zero (uncovered interest parity).Chapter 52. a. The euro is expected to appreciate at an annual rate of approximately (( )/)(360/180)100 = 1%. The expected uncovered interest differential is approximately 3% + 1% 4% = 0, so uncovered interest parity holds (approximately). b. If the interest rate on 180day dollardenominated bonds declines to 3%, then the spot exchange rate is likely to increase—the euro will appreciate, the dollar depreciate. At the initial current spot exchange rate, the initial expected future spot exchange rate, and the initial euro interest rate, the expected uncovered interest differential shifts in favor of investing in eurodenominated bonds (the expected uncovered differential is now positive, 3% + 1% 3% = 1%, favoring uncovered investment in eurodenominated bonds. The increased demand for euros in the spot exchange market tends to appreciate the euro. If the euro interest rate and the expected future spot exchange rate remain unchanged, then the current spot rate must change immediately to be $, to reestablish uncovered interest parity. When the current spot rate jumps to this value, the euro39。s exchange rate value is not expected to change in value subsequently during the next 180 days. The dollar has depreciated immediately, and the uncovered differential then again is zero (3% + 0% 3% = 0).4. a. For uncovered interest parity to hold, investors must expect that the rate of change in the spot exchangerate value of the yen equals the interest rate differential, which is zero. Investors must expect that the future spot value is the same as the current spot value, $ b. If investors expect that the exchange rate will be $, then they expect the yen to depreciate from its initial spot value during the next 90 days. Given the other rates, investors tend to shift their investments toward dollardenominated investments. The extra supply of yen (and demand for dollars) in the spot exchange market results in a decrease in the current spot value of the yen (the dollar appreciates). The shift to expecting that the yen will depreciate (the dollar appreciate) sometime during the next 90 days tends to cause the yen to depreciate (the dollar to appreciate) immediately in the current spot market.6. The law of one price will hold better for gold. Gold can be traded easily so that any price differences would lead to arbitrage that would tend to push gold prices (stated in a mon currency by converting prices using market exchange rates) back close to equality. Big Macs cannot be arbitraged. If price differences exist, there is no arbitrage pressure, so the price differences can persist. The prices of Big Macs (stated in a mon currency) vary widely around the world.8. According to PPP, the exchange rate value of the DM (relative to the dollar) has risen since the early 1970s because Germany has experienced less inflation than has the United States—the product price level has risen less in Germany since the early 1970s than it has risen in the United States. According to the monetary approach, the German price level has not risen as much because the German money supply has increased less than the money supply has increased in the United States, relative to the growth rates of real domestic production in the two countries. The British pound is the opposite case—more inflation in Britain than in the United States, and higher money growth in Britain.10. a. Because the growth rate of the domestic money supply (Ms) is two percentage points higher than it was previously, the monetary approach indicates that the exchange rate value (e) of the foreign currency will be higher than it otherwise would be—that is, the exchange rate value of the country39。s currency will be lower. Specifically, the foreign currency will appreciate by two percentage points more per year, or depreciate by two percentage points less. That is, the domestic currency will depreciate by two percentage points more per year, or appreciate by two percentage points less. b. The faster growth of the country39。s money supply eventually leads to a faster rate of inflation of the domestic price level (P). Specifically, the inflation rate will be two percentage points higher than it otherwise would be. According to relative PPP, a faster rate of increase in the domestic price level (P) leads to a higher rate of appreciation of the foreign currency.12. a. For the United States in 1975, 20,000 = k100800, or k = . For Pugelovia in 1975, 10,000 = k100200, or k = . b. For the United States, the quantity theory of money with a constant k means that the quantity equation with k = should hold in 2002: 65,000 = 2601,000. It does. Because the quantity equation holds for both years with the same k, the change in the price level from 1975 to 2002 is consistent with the quantity theory of money with a constant k. Similarly, for Pugelovia, the quantity equation with k = should hold for 2002, and it does (58,500 = 390300).14. a. The tightening typically leads to an immediate increase in the country39。s interest rates. In addition, the tightening probably also results in investors39。 expecting that the exchangerate value of the country39。s currency is likely to be higher in the future. The higher expected exchangerate value for the currency is based on the expectation that the country39。s price level will be lower in the future, and PPP indicates that the currency will then be stronger. For both of these reasons, international investors will shift toward investing in this country39。s