Interest rates and exchange rates (the details will be shown in Assignment

Interest rates and exchange rates (the details will be shown in instruction) - Assignment Example This is mainly because of the indifference of the investors. When the interest rate parity is covered, the interest rates and the forward exchange rate between two countries will be in equilibrium. This means that in such equilibrium, each unit return of home currency will be equal to the foreign currency. Thus, the covered interest rate parity states that the forward premium and the interest rate between two countries are equal and there will be no opportunity for arbitrage (Wang, 2009, pp.49-56). (Source: Dollery, University of Hull) The application of covered interest parity is that when it holds true, an investor will be indifferent of investment choice between two countries. For instance, if a French investor has the choice of either to invest or deposit in â‚ ¬ or $ then under CIRP, the investor will get same return irrespective of choice of currency. This is because in equilibrium the future value of investment or deposit will be same for both the currencies (Johann, 2008, p.10). Additionally, there will not be any scope for making profit due to the condition of no-arbitrage in CIRP (Gandolfo, 2002, pp.43-45). The covered interest rate parity is represented by the following equation: (1 + r$) = Ft/St x (1 + râ‚ ¬) Where, Ft = forward exchange rate during time‘t’; & the left hand side of the equation shows that dollar deposits return is equal to euro deposits the returns (Ullrich, 2009, pp.19-22). 2. Uncovered Interest Rate Parity (UIRP) – Investment in First Country The interest rate parity assumes that investors are willing to exchange foreign assets with domestic assets and vice-versa when there is opportunity of making profit from transactions. The theory also assumes that the assets are identical and hence perfect substitutes (Clark, 2002, pp.72-75). On the basis of this assumption it can be said that the investors will be willing to hold assets that yields superior returns irrespective of the origin country. This means that any random investor’s choice of investment decision will not be influenced by forward rates since the investor will earn equal returns on either option. This is because of the interest rate parity theory discussed earlier which assumes that there is no opportunity for arbitrage and the returns of domestic assets will be equal to that of foreign asset (Baillie and McMahon, 1990, pp.150-159). When the investor do not use the forward contract to hedge exchange rate fluctuations and the interest rate parity holds true (no opportunity for arbitrage), then the IRP is said to be uncovered (Harvey, 2008, p.90). The significance of uncovered interest rate parity is that it helps to determine the spot exchange rate by using the concept that expected changes in spot rate of two countries is equal to their interest rate differential (Melvin and Norrbin, 2012, p.115-119). a) Expected Exchange Rate Three Months from Birthday For the purpose of the study, the interest rates based on three month treasury bonds and changes in the interest rates were collected on daily basis. The exchange rates were extracted are the daily close price of exchange rates taken on the

Preventing biodiversity reduction in the coastal zone Essay

Preventing biodiversity reduction in the coastal zone - Essay Example Biodiversity have three levels - genetic diversity (i.e. diversity of genes within a species and between species), species diversity (refers to the differences in populations within a species, between populations, and between the various species), and ecosystem diversity (refers to the various habitats, biological communities and ecological systems; also denotes differences within ecosystems) (Ecological Society 1997). An ecosystem remains stable and balanced due to the variety and richness of organisms and species. The relationship of the varied species within an ecosystem has been well documented that destruction or extinction of one species may affect other living things, which may even lead to the extinction of the other species in the ecosystem. Thus, preserving and protecting one species in a particular area is similarly protecting the rest of the species. This is equally true to land-based species and sea and coastal creatures. Biodiversity denotes ecosystem balance and surviv al of the species within the system. Degradation in Biodiversity Generally, the ecosystem remains balanced in its usual natural course. The imbalance occurs when outside elements interfere with the usual processes. Man has interfered with the natural ecosystem for a long time. One form of invasion is by establishing habitation in the coastal areas (Water ecology 2009). It is reported that an estimated two-thirds of the total population lives near or along the coasts (Water ecology 2009). In fact, wetlands and some coastal areas are being dried by people in order to reclaim land for urban expansion (Water ecology 2009). The wetlands are also converted for farming, mining, gas and oil extraction, and highways for land transportation (Water ecology 2009). Sewage run-off and toxic contaminants (e.g. pesticides, heavy metals) are passed to coastal zones that become concentrated over a period of time (Water ecology 2009). These chemicals threaten aquatic life and biodiversity. Over-fishin g of a certain species without proper regulation likewise degrades biodiversity (Water ecology 2009). The coral reefs, that comprise a great number of plants and animals, are important in the coastal ecosystem balance. Ten percent of the coral reefs worldwide are being destroyed by human beings and only half of the countries around the world are capable of protecting them due to the expense that it entails (Water ecology 2009). According to Island Resources Foundation (1996), tourism has a greater indirect contribution to the degradation of coastal waters in terms of oil, fertilizer and pesticide pollution. The foundation’s report cited the US Virgin Islands waters that received oil spills from motorized vessels such as yacht, ferry and cruise ship (Island Resources Foundation 1996). In the Sarasota Bay and the Corpus Christy National Estuary Program assessments, the care practices for golf courses and condominium resorts release nitrate and phosphate to the waters during run off of storm water (Sarasota, 1993, cited in Island Resources Foundation 1996). It was also reported that the top 20 percent of countries that depend on tourism (e.g. Cayman Islands, Northern Netherlands Antilles, Anguilla, etc.) suffered environmental degradation that include reef, mangrove and related ecosystem damages (e.g. damage caused by anchors, clearing of mangrove, use of dynamite, littering, etc.) (Hoagland, et al. 1995, cited in Island Resources Foundation 1996). An alteration in the coastal zone such as construction of piers and wharves which