September 2014

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CIIA: How to use discount factors to calculate spot rate

  Using discount factors to find the final discount factor in a series If I already have several discount factors I can use them to calculate the following years’ discount factor; What I need to know is the number of years to maturity, the coupon and the current price.   With those values I can form an equation; PV = CF or CPN * sum of given discount factors +…

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CIIA: Why is a flexible exchange rate better than a fixed exchange rate?

why-is-a-flexible-exchange-rate-better-than-a-fixed-exchange-rate.pdf If positive inflation differentials occur and the exchange rate is fixed, the real exchange rate will appreciate. An appreciating exchange rate makes the country less competitive. However a flexible exchange rate acts as a buffer, a shock absorber, an automatic stabiliser. So if the inflation rates change there will be an equivalent change in the nominal exchange rate. This in turn leads to the real exchange rate remaining constant….

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Economics: Uncovered Interest Rate Parity (UIP)

CIIA_Economics_Currency_UIP_Uncovered_Interest_Rate_Parity_Question_Solution Question setup In intro text: „In September 2008 the US Fed fund rate was 2%, while one dollar bought 0.68 Euros.“ In question c) „…bear in mind that the price of one dollar reached a peak of about 0.80 Euros in November 2008…“ Actual question Briefly present the uncovered interest rate parity (UIRP/UIP) equation, and then assuming that UIRP/UIP holds, exploit it to forecast the three months movement of…