1. Assume that the current U.S. dollar - British spot rate is 0.63763£/$. If the
ID: 2705458 • Letter: 1
Question
1. Assume that the current U.S. dollar-British spot rate is 0.63763£/$. If the current nominal one-year interest rate in the U.S. is 2% and the comparable rate in Britain is 4%, what is the approximate forward exchange rate for 360 days? MUST SHOW ALL CALCULATIONS AND IDENTIFY ALL PARTS OF THE CALCULATION
2. Assume, as in Question 1, that one-year interest rates are currently 2.00% in the United States and 4.00% in Great Britain. The current spot rate between the pound and dollar is $1.5683/£. What is the expected spot rate in one year if the international Fisher effect holds?
MUST SHOW ALL CALCULATIONS AND IDENTIFY ALL PARTS OF THE CALCULATION
Explanation / Answer
1. forward exchange rate = 0.63763x1.04/1.02= 0.650133
2.expected spot rate = 1.5683x1.02/1.04= 1.5381
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.