Interest Rate Parity Formula tie the spot rate to the expected forward rate using the relationship...

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?

_____ is the percent premium for Pds?

Only pick one. Either US or Pds

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Expert Solution

jeff jeffy answered 2 years ago

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