Question
1)The one-year interest rate is 6% in the U.S. and 3% in the Eurozone.On the other hand, the one-year inflation is 5% in the U.S.
1)The one-year interest rate is 6% in the U.S. and 3% in the Eurozone.On the other hand, the one-year inflation is 5% in the U.S. and 4% in the Eurozone. The spot exchange rate is $1.10/.
a) What is the equilibrium one-year forward exchange rate based on Interest Rate Parity (IRP)? (20points)
b) What is the equilibrium one-year forward exchange rate based on Purchasing Power Parity (PPP)? (20points)
b)Figure out the one-year forward premium/discount for euro using the forward exchange rate based on IRP.
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Global Strategy
Authors: Mike W. Peng
5th Edition
0357512367, 978-0357512364
