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Thursday, March 28, 2013

How to forecast long term exchange rates

Imagine you are interested in estimating the exchange rate between the Chilean Peso and the USD in say...   20 years. Using Interest RateParity, we can easily tackle this question. Imagine the current spot rate is 500CLP=1USD.  Assume you are given the following rates and yield curve.

Recall that Interest Rate Parity states that   

This means that the future exchange rate is a function of the interest rate differentials between the two countries. It is VERY important to be aware of what is home and what is abroad…
Our spot rate is given in CLPs per USD. This implies that home is Chile.   With this in mind, we can calculate that the exchange rate 20 years from now should be  813.29 CLPs per 1 USD.

Thursday, March 14, 2013

Bilinguism... Moving along, far from destination

An excellent article in today's (3/13/2013) Financial Times shows some the benefits of being bilingual; flexible thinking;              
"...enhanced awareness of other people’s points of view, born from their deeper understanding, from an early age, that some people have a different perspective. They are also better than monolinguals at giving selective attention to specific features of a problem, while ignoring misleading elements, and at switching between different tasks."

This follows a March posting by the New York Times stating that "bilinguals are more adept than monolinguals at solving certain kinds of mental puzzles."  

It is very informative to see that despite the above, the US is far behind Europe.

Obtained from the DANA foundation

A great summary of benefits is below. I obtained it from the Ecole Bilingue de Berkeley website.


  • Bilingualism increases mental flexibility for children. Bilinguals will have two or more words for a single object, concept or idea.
  • Bilingual children are more willing and able to learn a third language, and show an increased analytic orientation to language.
  • Children who study a second language score higher on verbal standardized tests conducted in English. Bilingual children also perform better in math and logic skills than children with just one language.
  • Learning a second language helps children build self-esteem, creativity, problem-solving skills, and math ability.


  • Bilingual children maintain a strong sense of their own identity while developing sensitivity towards other people and cultures.
  • Since bilinguals need to be aware of which language to speak in which situation, a bilingual child is more aware of the needs of the listener.


  • Being taught in two languages gives children a head start in competition for universities and jobs.