土豆妮

The U.S. interest rate is 4%, the Jordan interest rate is 7% and the $/JOD spot rate is 2.0010. What is the $/JOD forward rate that satisfies interest rate parity?

A) $0.5142 / JOD.

B) $1.9450 / JOD.

C) $1.0936 / JOD.

土豆妮

The U.S. interest rate is 4%, the Jordan interest rate is 7% and the $/JOD spot rate is 2.0010. What is the $/JOD forward rate that satisfies interest rate parity?

A) $0.5142 / JOD.

B) $1.9450 / JOD.

C) $1.0936 / JOD.

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Forward(DC/FC) = Spot (DC/FC)[(1 + r domestic) / (1 + r foreign)]

(2.0010)(1.04/1.07)

(2.0010)(0.972)

= 1.9450

土豆妮

A resident of China can invest in Chinese yuan at 5.5% or in Egyptian pounds at 6%. The current spot rate is 80 CY/EGP. What is the one-year forward rate expressed in CY/EGP?

A) 79.6226.

B) 80.3792.

C) 88.9876.

土豆妮

A resident of China can invest in Chinese yuan at 5.5% or in Egyptian pounds at 6%. The current spot rate is 80 CY/EGP. What is the one-year forward rate expressed in CY/EGP?

A) 79.6226.

B) 80.3792.

C) 88.9876.

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Forward (DC/FC) = Spot (DC/FC)[(1 + r_domestic) / (1 + r_foreign)]

(80 CY/EGP)[(1 + 0.055) / (1 + 0.06)]

(80)(0.99528)

= 79.6226

土豆妮

An investor can invest in Tunisian dinar at r = 6.25% or in Swiss francs at r = 5.15%. She is a resident of Tunisia and the current spot rate is 0.8105 TND/SF. What is the approximate one-year forward rate expressed in TND/SF?

A) 0.8016.

B) 0.8194.

C) 0.8215.

土豆妮

An investor can invest in Tunisian dinar at r = 6.25% or in Swiss francs at r = 5.15%. She is a resident of Tunisia and the current spot rate is 0.8105 TND/SF. What is the approximate one-year forward rate expressed in TND/SF?

A) 0.8016.

B) 0.8194.

C) 0.8215.

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The approximate forward premium/discount is given by the interest rate differential. This differential is: 6.25% ? 5.15% = 1.10%. Since Tunisia has higher interest rates, its currency will be at a discount in the forward market. This discount equals: 0.011 × 0.8105 = 0.0089. Since the exchange rate is quoted in TND/SF, as a depreciating currency, it will take more TND to buy one SF. The forward rate is thus: 0.8105 + 0.0089 = 0.8194 TND/SF. In other words, the SF is stronger in the forward market.

luqian55

thanks

annyyu

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