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4.25 Suppose the spot rates for the pound, mark, and Swiss franc prior to 1999 were $1.20, $.32, and $.40, respectively. At the same time,
4.25 Suppose the spot rates for the pound, mark, and Swiss franc prior to 1999 were $1.20, $.32, and $.40, respectively. At the same time, the associated 90-day interest rates (annualized) were 16%, 8%, and 4%, while the U.S. 90-day interest rate was 12%. What was the 90-day forward rate (to the nearest cent) on a TCU (TCU 1 : 1 + DMl + SFri) if interest parityr were to hold? a) $1.92 b) $1.98 c) $1.94 d) $1.87 Ans: a Section: Interest rate parity theory Level: Medium
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