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Suppose that India's 10-month bond rate is 4.536% (annualized), while that of the U.S. is 1.325%. The current spot rate is 76.2 rupees/$. The 10-month
Suppose that India's 10-month bond rate is 4.536% (annualized), while that of the U.S. is 1.325%. The current spot rate is 76.2 rupees/$. The 10-month forward rate is 76.5 rupees/$.
What parity condition does this violate?
Given the other rates, what would the forward rate be if this condition were true?
Given the forward premium stated, which bond yield seems "too high" according to the parity condition, give a possible explanation for why this parity condition doesn't hold.
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