ge Layout Formulas Data Review View libri (Body) , | | 11 , | A^ A. E Wrap Text General INTEREST RATE PARITY, PURCHASING POWER PARITY AND INTERNATIONAL FISHER EFFECT U.S Nominal interest rate (ih and if) for ease of notation in Excel, that subscripts aren't used here Expected inflation [Ih and if Spot rate One-year forward rate 71 6% 5% 113 1.10 0% a. Does IRP hold? b. According to PPP, what is the expected spot rate of the euro in one year? c. According to the IFE, what is the expected spot rate of the euro in one year? d. Reconcile your answers to parts (a). and (c). Using IRP, Forward premium (p)-(1 + ih?1+ Expected forward rate for the euro spot rate (1 +pl Using PPP. expected spot rate in one year e?(1 + ih!/(1 + f-1 expected spot rate in one year r spot rate (1 ef) Hints. a -1 . cUsing IFE, expected spot rate in one year ef ih if)-1 expected spot rate in one year s spot rate'(1 + ef Assume the and further, assume that interest rate parity exists u.S One r risk-free interest rate 10% 50.14 What is the one year forward rate premium? What is the one-year forward rate of the peso? a. b. change in the spot rate over the next year? If the spot rate changes as expected according to the IFE, what will be the spot rate in one year? e. Compare your answers to (b) and (d) and explain the relationship SHOW ALL WORK