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The one - year interest rate is 6 % in the U . S . and 4 % in the Eurozone. On the other hand,
The oneyear interest rate is in the US and in the Eurozone. On the other hand, the oneyear inflation is in the US and in the Eurozone. The spot exchange rate is $
a When the year forward market exchange rate is $ Figure out the oneyear forward premiumdiscount for euro. points
b What is the equilibrium oneyear forward exchange rate based on Interest Rate Parity IRPpoints
c What is the equilibrium oneyear forward exchange rate based on Purchasing Power Parity PPPpoints
d Given the difference between the forward market exchange rate of $ and the equilibrium forward exchange rate based on IRP or PPP
i Which currency is underpricedundervalued on the forward market? Dollar or euro? points
ii Which position do you want to take on the forward market? A long position or short position for euro? points
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