土豆妮

The domestic interest rate is 9% and the foreign interest rate is 7%. If the forward rate is 5 domestic units per foreign unit, what should the spot exchange rate be for interest rate parity to hold?

A) 4.83.

B) 4.91.

C) 5.09.

土豆妮

The domestic interest rate is 9% and the foreign interest rate is 7%. If the forward rate is 5 domestic units per foreign unit, what should the spot exchange rate be for interest rate parity to hold?

A) 4.83.

B) 4.91.

C) 5.09.

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F/S = (1 + r_domestic) / (1 + r_foreign). Note in this equation exchange rates are quoted as Domestic/Foreign.

S = F (1 + r_F) / (1 + r_D) = (5)(1.07) / (1.09) = 4.908

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 domestic interest rate is 7% and the foreign interest rate is 9%. If the forward exchange rate is 5 domestic units per foreign unit, what spot exchange rate is consistent with interest rate parity (IRP)?

A) 4.91.

B) 5.72.

C) 5.09.

土豆妮

The domestic interest rate is 7% and the foreign interest rate is 9%. If the forward exchange rate is 5 domestic units per foreign unit, what spot exchange rate is consistent with interest rate parity (IRP)?

A) 4.91.

B) 5.72.

C) 5.09.

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Using the following IRP equation: Forward_DC/FC=Spot_DC/FC × [(1 + r_domestic) / (1 + r_foreign )] 

Solving for the spot rate: Spot_DC/FC = Forward_DC/FC × [(1 + r_foreign) / (1 + r_domestic)] 

                                    = [(1 + 0.09) / (1 + 0.07)](5)

                                    = (1.09 / 1.07)(5)

                                    = 5.09

土豆妮

The domestic interest rate is 9% and the foreign interest rate is 7%. If the forward exchange rate is 5 domestic units per foreign unit, what spot exchange rate is consistent with interest rate parity?

A) 4.91.

B) 4.83.

C) 5.09.

土豆妮

The domestic interest rate is 9% and the foreign interest rate is 7%. If the forward exchange rate is 5 domestic units per foreign unit, what spot exchange rate is consistent with interest rate parity?

A) 4.91.

B) 4.83.

C) 5.09.

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F/S = (1 + r_domestic) / (1 + r_foreign). Note: in this equation, exchange rates are quoted as Domestic/Foreign.

S = F (1 + r_F) / (1 + r_D) = (5)(1.07) / (1.09) = 4.908

土豆妮

Suppose the Argentina peso is at a 1-year forward premium of 4% relative to the Brazilian real and that Argentina’s 1-year interest rate is 7%. If interest rate parity holds, then the Brazilian interest rate is closest to:

A) 6.60%.

B) 3.00%.

C) 11.00%.

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According to interest rate parity the currency with the lower interest rate is expected to appreciate so the Argentina rate of 7% is approximately 4% less than the Brazilian rate of 7 + 4 = 11%.

土豆妮

Given the following information, what is the forward exchange rate implied by interest rate parity?

• U.S. interest rate = 9%.
• North Korea interest rate = 10%.
• Spot rate = 1.65 KPW/$.

A) 1.665 KPW/$.

B) 0.612 KPW/$.

C) 1.635 KPW/$.

土豆妮

Given the following information, what is the forward exchange rate implied by interest rate parity?

• U.S. interest rate = 9%.
• North Korea interest rate = 10%.
• Spot rate = 1.65 KPW/$.

A) 1.665 KPW/$.

B) 0.612 KPW/$.

C) 1.635 KPW/$.

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Forward rate (DC/FC) = Spot Rate (DC/FC) × [(1 + domestic rate) / (1 + foreign rate)],
Forward rate = 1 / 1.65 (KPW/$) × (1.09 / 1.10) = 0.60055 $/KPW, or 1.665 KPW/$.
Alternatively, forward rate = 1.65 (KPW/$) × (1.10 / 1.09) = 1.665 (KPW/$).