International Finance Exam

Please read instructions carefully:
Assignment below refers to “your country” which stands for the country you have presented on.
Please specify “your country” here _________________________
Assignment below refers to “main currency” which is either US Dollar or Euro. If “your country” has a fixed exchange rate tied to USD, use Euro as “main currency”. Otherwise, use USD.
Please specify “main currency” here ______________________
Go to Yahoo! Finance and find information on exchange rate of main currency/your country currency. Take a screenshot of Summary tab.
Fig. 1. Summary for “Main Currency/Your Country’s Currency”
What is the bid-ask spread according to the above screenshot?
 
What is the bid-ask spread for the reciprocal quote (“Your country’s currency/Main Currency”)? You have to show how you converted the values from the Summary tab to get the reciprocal quote.
 
Open daily exchange data in Historical Data tab, and fill out the following table.
Table 1. Historical exchange rates for Main Currency/Your Country’s Currency

 
Given the values in Table 1, calculate indirect exchange rate (Your Country’s Currency/Main Currency) for each date. You have to show your calculations.
 
Explain how each of the following conditions would be expected to affect Your Country’s Currency/Main Currency exchange rate. Be specific.

1. Your country’s central bank substantially lowers interest rates.

1. A deficit in your country’s Balance of Payment’s current account due to the import/export imbalance.

1. An increase in the US government debt.

 
 
Table 2. Historic exchange rates for Russian Ruble/Main Currency

 
Using information in Table 1 and in Table 2, find cross-exchange rate between Russian Ruble and Your Country’s currency for each date. You have to show your calculations.
 
 
 
 
 
 
 
 
Using daily historical data on exchange rate between Main Currency/Your Country’s Currency, fill out the blanks to calculate average volatility of your country’s currency.

 
 
 
 
 
 
 
 
 
 
Download annual interest rate (CPI) data from the World Bank (https://data.worldbank.org/indicator/fp.cpi.totl.zg) and supplement Table 1 with interest rates for your country and the main currency country

 
How well does relative PPP hold in this example? Explain.