Question
Suppose you observe a spot exchange rate of $1.0500/. If interest rates are 5% APR in the U.S. and 3% APR in the euro zone,
Suppose you observe a spot exchange rate of $1.0500/. If interest rates are 5% APR in the U.S. and 3% APR in the euro zone, what is the no-arbitrage 4 month forward rate? Based on IRP, what should the theoretical Forward rate be? HINT: Solve for F using the IRP Formula.
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Essential Mathematics For Economic Analysis
Authors: Knut Sydsaeter, Peter Hammond
3rd Edition
0273713248, 9780273713241
