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Chapter 27 Managing International Risk 4. Interest rate parity The following table shows interest rates and exchange rates for the U.S. dollar and the Lilliputian

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Chapter 27 Managing International Risk 4. Interest rate parity The following table shows interest rates and exchange rates for the U.S. dollar and the Lilliputian nano. The spot exchange rate is 15 nanos $1. Complete the miss- ing entries: 1 Month 3 Months 1 Year 4.5 Dollar interest rate (annually compounded) Nano interest rate (annually compounded) Forward nanos per dollar Forward discount on nano (% per year) 4.0 9.8 8.2 15.6 4.8

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