Question
Suppose investors can choose any country in which to invest and that every investor in a particular country earns the same interest rate on investment.
Suppose investors can choose any country in which to invest and that every investor in a particular country earns the same interest rate on investment. Consider the case of an investor deciding between putting money in the USA or India (currency is called rupee, its symbol is ).
a) If the spot exchange rate is 66.845/$, interest in the USA is at an annual rate of 4%, interest in India is 6%, then would you expect the forward rate one year from now to be more or fewer rupees per dollar?
b) How many rupees would you expect a dollar to be worth on the spot market in one year from now?
c) What would a prot seeking arbitrager do if the actual 12-month forward rate was $0.016/|?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started