International Financial Management
Collect foreign exchange spot and forward rate data and interest rate data for two currencies; examine whether CIRP holds; analyse and discuss resultÃ¯Â¿Â½
4Collected data Ã¯Â¿Â½
The theory of Purchasing Power Parity (PPP) is not appropriate to foreign exchange rate determination. One of the problems of using PPP is that it is primarilly focuses on differences of goods and service prices and it does not pay attention on international capital flows. After World War II, the foreign exchange market has spread quickly and it has enabled many foreign exchange transactions among countries, throughout the world and in any amount. This fact essentially supports the speculations about converting money from one currency to another dependent on the expected rate of return.
The theory of covered interest rate parity was modeled to understand the relation between the spot exchange rate, the forward exchange rate and the interest rates in the two countries in a time period.
I have conceived this essay to research how the czech investor (a funds of 100.000.000CZK owner) can reach and exploit the arbitrage opportunity in the Euroland. It was really problematic to find out information about above mentioned rates in the Czech Republic. There is no information about forward exchange rates. When I tried to contact banks they told me they couldnÃÂ´t help me (the ÃÂsob bank operator, 30/10/07) or the other one said I knew more about it than she did (the ÃÂs bank operator, 30/10/07). Ultimately, I contacted the group ÃÂ´patria onlineÃÂ´, the membership has to be prepaid to get the information about foreign exchange market. I have dealt with them and got the free limited membership to find out the data for the essay - the information...