Q1. Given the following information:

§      The forward rate between dollars and pounds is 1.66$/GBP.

§      The current spot rate is 1.543 $/GBP.

§      The UK interest rate is 5.77%.

§      The interest rate in the United States is 5.976%.

Assume a U.S. investor can borrow pounds or dollars. What is the covered interest rate differential?

A)     −0.07814.

B)     0.6786.

C)     0.07661.

Q2. If (r_D − r_F) > Forward premium, which is (Forward D/F) − Spot(D/F) / Spot(D/F), then:

A)   borrow domestic currency and lend out foreign currency.

B)   arbitrage opportunities don't exist.

C)   borrow foreign currency and lend out domestic currency.

答案和详解如下：

Q1. Given the following information:

§      The forward rate between dollars and pounds is 1.66$/GBP.

§      The current spot rate is 1.543 $/GBP.

§      The UK interest rate is 5.77%.

§      The interest rate in the United States is 5.976%.

Assume a U.S. investor can borrow pounds or dollars. What is the covered interest rate differential?

A)     −0.07814.

B)     0.6786.

C)     0.07661.

Correct answer is A)

(1 + r_D) − [(1 + r_F)(forward rate)] / spot rate

(1 + 0.05976) − [(1 + 0.0577)(1.66)] / 1.543

1.05976 − [(1.0577)(1.66)] / 1.543

1.05976 − (1.75578 / 1.543)

1.05976 − 1.13790 = −0.07814

Q2. If (r_D − r_F) > Forward premium, which is (Forward D/F) − Spot(D/F) / Spot(D/F), then:

A)   borrow domestic currency and lend out foreign currency.

B)   arbitrage opportunities don't exist.

C)   borrow foreign currency and lend out domestic currency.

Correct answer is C)

If (r_D − r_F) > Forward premium, which is (Forward D/F) − Spot(D/F) / Spot(D/F), then you would borrow foreign currency and lend out local currency. If the domestic rate is high relative to the hedged foreign rate, you would borrow foreign currency units and then sell them for domestic currency units at the spot rate, lend these domestic currency units at the domestic interest rate and simultaneously sell just enough domestic currency forward so that you can repay your foreign loan.