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Homework answers / question archive / Interest Rate Parity Formula tie the spot rate to the expected forward rate using the relationship between interest rates in two countries
Interest Rate Parity Formula tie the spot rate to the expected forward rate using the relationship between interest rates in two countries.
The spot rate equals .71 Pds/$
If the annual interest rate in USA is presently 3.0%
The annual interest rate in UK is presently 6.0%
What is the forward exchange rate consistent with IRP in 252 days? _____ Pds
Use the forward rate calculated in the problem above.
Calculate the % forward rate premium (or discount) for the UK (pounds)
Note: The currency whose forward exchange rate shows strengthening is at a premium.
_____ is the percent premium for (US/Pds)?