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please show everyone calculated number. thanks Write neatly and show all steps and calculation As of October, 1, 2010, the 1 year forward rate on
please show everyone calculated number.
Write neatly and show all steps and calculation As of October, 1, 2010, the 1 year forward rate on Euro is 0.7252:$1. The spot exchange rate is 0.7258:31. The 3 month short-term interest rate is 0.47% in Germany and 0.16% in the U.S. The 1 year interest rate is 0.72% in Germany and 0.26% in the U.S. (a) According to the Interest Rate Parity condition, what is the 1 year forward exchange rate betweem euro and dollar? Is there an arbitrage opportunity? Why? (8 points) Answer: (b) How can you create a trade to make risk free arbitrage profit? (8 points) Answer: (c) What is the expected exchange rate in one year? (8 points) thanks
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