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Urgent -- sfm-forex

IPSA ;) ($) (611 Points)

07 September 2012

1 $ = 40.11 INR

1 year forward rate, 1 $ = 43.52 INR

Inflation rate in India = 8.5 %

Inflation rate in US ?

Please Help.

Thanks in Advance.

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6 Replies

CA Ashish Pathak (Employed at Cipla Ltd.) (2779 Points)
Replied 07 September 2012

Inflation rate in US = 0 using the Inflation Rate Parity Theory Equation.

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Jai Kumar (CA_Final_ Nov 12) (63 Points)
Replied 07 September 2012

As per Inflation rate parity Fwd. Rate = Spot Rate (1+inflation rate of price currency)/(1+inflation rate of base curreny)

So, 43.52 =40.11(1.085)/(1+x)

1+X = 43.52/43.52

1+x =1

x = 0%

IPSA ;) ($) (611 Points)
Replied 07 September 2012

ya... even i got the same answer !? but.. i thot inflation rate cant be zero ?? can it be ??

CA Ashish Pathak (Employed at Cipla Ltd.) (2779 Points)
Replied 07 September 2012

Yes it can be. Inflation rate can even be negative and then we call it 'Deflation' in Economics.

Rockstar (Student) (143 Points)
Replied 10 September 2012

Yes Bank is seeking fixed rate funding.It is able to finance at a cost of six months LIBOR + 0.25% for Rs.2 crores for 5 Years. The bank is able to swap into a fixed rate at 7.5% versus six month LIBOR treating six months as exactly half a year.

(a) What will be the "all in cost" funds to Yes Bank?

(b) Another possibility being considered is the issue of a hybrid instrument which pays 7.5% for 1st three years and LIBOR-0.25% for remaining 2 years.

Given a 3 year swap rate of 8%, suggest the method by which the bank should achieve fixed rate funding.