dealer rate: CHF/EUR 1.0741/1.0746 (bid/offer)
market rate:
bid
CHF/USD = (1/1.0456) / (1/1) = 0.9564 (must take the inverse)
USD/EUR = 1.1241 , so CHF/EUR = 1.0751
offer
CHF/USD = (1/1.0543) / (1/1) = 0.9567
USD/EUR = 1.1243 , so CHF/EUR = 1.0756
arbitrage opportunity, buy 1.0746 from dealer and sell 1.0751 to market
2) Mundell Fleming model
combination of expansionary monetary policy and restrictive fiscal policy, lead to lower rate, capital outflow and currency depreciation.
3) Uncovered interest rate parity
Ff/d = Sf/d (1+rf) / (1+rd)
or in another form:
(1+rd) = (1+rf) Sf/d / Ff/d
4) find mark to market value of forward position
The guy sold 20mil euro forward, at USD/EUR = 1.1716
now to calculate mark to market, he needs to buy back euro, so use offer rate (because market sells to him)
forward point (USD/EUR) 35/36 (bid/offer)
1.1243 + 0.0036 = 1.1279 USD/EUR
20mil * (1.1716-1.1279) = $874,000
PV : 874,000 / (1 + 0.0053 (180/360)) = $871,690
0.0053 is LIBOR (USD)
5) Growth model
Under classical model, Growth in real GDP is temporary, population explosion will occur and stop the growth
Under neoclassical model, TFP impact the growth rate of output per worker, but capital deepening has no effect on the long term growth of the economy. This can be captured by understanding that in the neoclassical model, there are diminishing returns to capital. Furthermore, changes in savings, labor force growth rate impact only the level of output per worker but do not impact growth rate of output per worker.
In the endogenous growth model, returns to capital can be constant. Therefore in the endogenous growth theory, as savings increase (savings are closely tied to capital investment), the growth rate can keep increasing. If question asks: “Under which theory would R&D expenditures have a long term impact on growth” it would be Endogenous. The idea being that this form of capital expenditure can actually have an impact on Total Factor Productivity.
2) Mundell Fleming model
combination of expansionary monetary policy and restrictive fiscal policy, lead to lower rate, capital outflow and currency depreciation.
3) Uncovered interest rate parity
Ff/d = Sf/d (1+rf) / (1+rd)
or in another form:
(1+rd) = (1+rf) Sf/d / Ff/d
4) find mark to market value of forward position
The guy sold 20mil euro forward, at USD/EUR = 1.1716
now to calculate mark to market, he needs to buy back euro, so use offer rate (because market sells to him)
forward point (USD/EUR) 35/36 (bid/offer)
1.1243 + 0.0036 = 1.1279 USD/EUR
20mil * (1.1716-1.1279) = $874,000
PV : 874,000 / (1 + 0.0053 (180/360)) = $871,690
0.0053 is LIBOR (USD)
5) Growth model
Under classical model, Growth in real GDP is temporary, population explosion will occur and stop the growth
Under neoclassical model, TFP impact the growth rate of output per worker, but capital deepening has no effect on the long term growth of the economy. This can be captured by understanding that in the neoclassical model, there are diminishing returns to capital. Furthermore, changes in savings, labor force growth rate impact only the level of output per worker but do not impact growth rate of output per worker.
In the endogenous growth model, returns to capital can be constant. Therefore in the endogenous growth theory, as savings increase (savings are closely tied to capital investment), the growth rate can keep increasing. If question asks: “Under which theory would R&D expenditures have a long term impact on growth” it would be Endogenous. The idea being that this form of capital expenditure can actually have an impact on Total Factor Productivity.
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