You know the following. The interest rate in the $ is 10% and in the euro it is

Q: You know the following. The interest rate in the $ is 10% and in the euro it is

Forward Rate = Spot Rate X (1 + Interest Rate of Overseas country) (1 + Interest Rate of Domestic country) = 1 * ( 1+ 0.16) / (1+0.10) = 1.0545 euro / $

ID: 2745007 • Letter: Y

Question

You know the following. The interest rate in the $ is 10% and in the euro it is1 6%. If the spot ER is euro/$ 1 (meaning 1 euro for 1 dollar.) SHOW IN DETAIL what the forward rate will be. Assume that interest rate parity in an absolute form holds true. EXPLAIN your answer. You know the following. The interest rate in the $ is 10% and in the euro it is1 6%. If the spot ER is euro/$ 1 (meaning 1 euro for 1 dollar.) SHOW IN DETAIL what the forward rate will be. Assume that interest rate parity in an absolute form holds true. EXPLAIN your answer. You know the following. The interest rate in the $ is 10% and in the euro it is1 6%. If the spot ER is euro/$ 1 (meaning 1 euro for 1 dollar.) SHOW IN DETAIL what the forward rate will be. Assume that interest rate parity in an absolute form holds true. EXPLAIN your answer.

Explanation / Answer

Forward Rate = Spot Rate X (1 + Interest Rate of Overseas country)
(1 + Interest Rate of Domestic country)

= 1 * ( 1+ 0.16) / (1+0.10)

= 1.0545 euro / $

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You know the following. The interest rate in the $ is 10% and in the euro it is

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