A. Suppose the spot rate of Polish Zloty to the US dollar is 3.9 and the forward

Question

A. Suppose the spot rate of Polish Zloty to the US dollar is 3.9 and the forward rate in the 180 day market of the Polish Zloty is 3.5 per dollar. The Polish Zloty is then selling at a _____________ to the spot rate. Express your answer as a decimal not a percentage. 2*({F} -{S})/{S}

B. Suppose 1 Mexican Peso equals 0.052 US dollars in the spot market. Six-month Mexican government debt has an annualized return of 0.066 (and thus a 6-month periodic return of {rm/2}). Six-month U.S. government debt has an annualized return of 0.00 and a periodic return of {rd/2}. If interest rate parity holds, what is the value of 1 Mexican Peso in US dollars U.S. in the 180-day forward market? {S} *( 1 + ({rm}/2))/(1 + ({rd}/2))

Explanation / Answer

A)

2*({F} -{S})/{S} = 2*(3.5 - 3.9)/3.9 = -0.2051

B)

{S} *( 1 + ({rm}/2))/(1 + ({rd}/2))

0.052*(1+0.066/2)/(1+0.00/2) = 0.053716  

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