土豆妮

The domestic interest rate is 8% and the foreign interest rate is 6%. If the spot rate is 4 domestic units/foreign unit, what should the forward exchange rate be for interest rate parity to hold?

A) 3.930.

B) 4.250.

C) 4.075.

土豆妮

The domestic interest rate is 8% and the foreign interest rate is 6%. If the spot rate is 4 domestic units/foreign unit, what should the forward exchange rate be for interest rate parity to hold?

A) 3.930.

B) 4.250.

C) 4.075.

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Using the following interest rate parity equation:

Forward_DC/FC=Spot_DC/FC × [(1 + r_domestic) / (1 + r_foreign )] 

Solving for the forward rate:  Forward_DC/FC = 4 × [(1 + 0.08) / (1 + 0.06)]

= 4(1.08) / (1.06)

= 4(1.01887)

= 4.07547

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

One-year interest rates are 7.5% in the U.S. and 6.0% in New Zealand. The current spot exchange rate is $0.55/NZD. If interest rate parity holds, today’s one-year forward rate ($/NZD) must be:

A) $0.55778/NZD.

B) $0.54233/NZD.

C) $0.56675/NZD.

土豆妮

One-year interest rates are 7.5% in the U.S. and 6.0% in New Zealand. The current spot exchange rate is $0.55/NZD. If interest rate parity holds, today’s one-year forward rate ($/NZD) must be:

A) $0.55778/NZD.

B) $0.54233/NZD.

C) $0.56675/NZD.

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Interest rate parity is given by:

Forward (DC/FC) = $0.55/NZD × (1.075/1.06) = $0.55778/NZD

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