Question

In: Finance

Based on the information above, do you think that IRP holds or not? Please show your formula and calculation.

Exchange Rate

Interest Rate (APR)


S0($/€)              

$1.50=€1.00            

i$=2%

F360($/€)           

$1.58=€1.00            

i€=4%

Based on the information above, do you think that IRP holds or not? Please show your formula and calculation.

Solutions

Expert Solution

Forward rate= spot rate (1+interest in Dollar)/(interest in euro)

= 1.50(1.02)/(1.04)

=$1.4711

The given forward rate is $1.58, so it can be said that it there is no interest rate parity that is holding and there is a discrepancy

jeff jeffy answered 2 years ago
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