Answered step by step
Verified Expert Solution
Question
1 Approved Answer
U.S. is the home country and assume 360 days in a year. US Europe Nominal interest rate per annum 17.8% 7% Expected inflation rate per
U.S. is the home country and assume 360 days in a year.
| US | Europe |
Nominal interest rate per annum | 17.8% | 7% |
Expected inflation rate per annum | 14.5% | 4% |
Spot rate for US$/Euro |
| $1.0/ |
180-day forward rate for US$/Euro |
| $1.05 |
(b) According to Interest Rate Parity and based on the actual nominal interest rates given,
(1) what should be the forward premium/discount on euro on an annualized basis? (4 marks)
(2) what should be the 180-day forward rate for US$/euro?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started