Question
In: Finance
Given: Spot: USD/DKK 5.6531/ 5.6542 6 month-forward outright: USD/DKK 5.7781/ 5.7832 US (USD) interest rates (investing,...
Given:
Spot: USD/DKK 5.6531/ 5.6542
6 month-forward outright: USD/DKK 5.7781/ 5.7832
US (USD) interest rates (investing, borrowing) 0.25%,
0.75%
Danish (DKK) interest rates (investing, borrowing) 1.25%,
1.75%
all interest rates given in annual nominal terms
a) calculate the theoretical forward rate implied by interest
rate parity
b) show whether the forward is overvalued or undervalued
c) which currency should you borrow in and why ?
d) what is the percentage return from engaging in covered
interest parity?
Solutions
jeff jeffy answered 4 months agoRelated Solutions
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Japanese yen (JPY) and Canadian dollar (CAD).
Currencies
3-month forward rate
Spot rate
USD/MYR
4.3936
4.3610
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107.6400
USD/CAD
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1.3839
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MYR
USD
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JPY
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1.00%
1.50%
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Spot rate
USD/MYR
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4.3610
USD/JPY
107.3333
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USD/CAD
1.3856
1.3839
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risk-free rate per annum for the four different currencies
3-month nominal risk-free rate
MYR
USD
CAD
JPY
4.00%
1.00%
1.50%
0.00%
Note that the Japanese yen 3-month nominal risk-free rate is...
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