Question
Assume the following information is available for the U.S. and Europe: U.S. Europe Nominal interest rate 4% 6% Expected inflation 2% 5% Spot rate -----
Assume the following information is available for the U.S. and Europe:
|
| U.S. | Europe |
| Nominal interest rate | 4% | 6% |
| Expected inflation | 2% | 5% |
| Spot rate | ----- | $1.13 |
| One-year forward rate | ----- | $1.10 |
Does IRP hold assuming markets are perfectly efficient with no market friction? (meaning calculated forward rate is exactly the same as market forward rate)
Correct!
Yes
No
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Financial Institutions Management
Authors: Anthony Saunders, Marcia Cornett
8th Edition
0078034809, 978-0078034800
