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Suppose you have a credit line of $10,000,000 in the US and BP 5,000,000 in UK, and that you can borrow and lend at the
Suppose you have a credit line of $10,000,000 in the US and BP 5,000,000 in UK, and that you can borrow and lend at the prevailing rates of interest in these two countries. Current spot rate of BP = $2.00 ; Expected spot rate for BP, one year from now = $2.10 ; Interest rate in the U.S. = 10.0% ; Interest rate in the U.K. = 5.5%. What should be the current forward premium for BP according to Interest Rate Parity? 3.755% -2.450% 4.265% -4.090%
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