Question
The following current rates have been observed: Spot exchange rate: $1.25/SFr Expected future spot rate in 90 days: $1.2625/SFr Annual interest rate on 90-day U.S.-dollar-denominated
The following current rates have been observed:
Spot exchange rate: $1.25/SFr
Expected future spot rate in 90 days: $1.2625/SFr
Annual interest rate on 90-day U.S.-dollar-denominated bonds: 12%
Annual interest rate on 90-day SFr-denominated bonds: 4%
(i)At these initial rates, does uncovered interest parity hold? Why?
(ii)What spot exchange rate will be consistent with uncovered interest parity?
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Macroeconomics
Authors: Glenn Hubbard, Anthony Patrick O'Brien, Matthew P Rafferty
1st Edition
978-0132109994, 0132109999
