Gotohell buys and sells regularly with customers worldwide. Its home currency is the dollar. The firm...

Gotohell buys and sells regularly with customers worldwide. Its home currency is the dollar. The firm expects to receive €1.2 million in 6 months’ time from a customer abroad.

Current exchange rates in the home country of Gotohell are:

Exchange rate : Euros Per dollar

Spot : 4.1780-4.2080

6-month forward : 4.2302- 4.2606

12-month forward : 4.2825-4.3132

Required:

a) Calculate the rate of forward discount of the euro on the 6-month forward exchange rate both for buying and selling rate.

b) If the interest rate in the home country of Gotohell is 4% per year, calculate the implied annual interest rate in the foreign customer’s country, using the mid-spot and the mid-twelve-month forward exchange rate.

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ekkarill92 answered 10 months ago

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