Question
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 |
| $1.05 |
(a) Based on the actual spot and forward rates given, what is the actual forward premium/discount on euro on an annualized basis?
(b) According to Interest Rate Parity and based on the actual nominal interest rates given,
(1) what should be the forward premium/discount on euro on an annualized basis? (4 marks)
(2) what should be the 180-day forward rate for US$/euro?
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Entrepreneurial Finance Strategy, Valuation, And Deal Structure
Authors: Janet Smith, Richard Smith, Richard Bliss
1st Edition
0804770913, 9780804770910
