注册 登录
上一主题：Quant Schweser_Question ID#: 86494
下一主题：Schweser QBank Inter-Corp Investment Q
返回列表 发帖
sabaruch

Rank: 2

UID
223337 
帖子
254 
主题
54 
注册时间
2011-7-11 
最后登录
2013-9-27 
1# 跳转到 » 倒序看帖
打印
tT
发表于 2013-4-7 10:37 | 只看该作者

interest rate parity question

discount, somebody, interest, question
I would appreciate if somebody can help me with this problem:
This is one of the problems from the Schweser note (Assigned reading 18 question 10)
Question:
Assume the Phillipine peso is at a 1 year forward discount of 1.25% to the Thai baht, and Thailand`s 1 year interest rate is at 3%. If a Thai investor has no arbitrage opportunities, the Phillipine interest rate is closest to:
A, 4.25%.
B, 1.76%
C, 1.25%
Answer:If there are no arbitrage opportuniites, IRP holds, and the interest rate differentila is equal to the forward differential ( i understand this).Since the PHP is trading at a forward discount, PHP interest rate must be greater than THB interest rate.
Thanks

 

相关主题：

. Equity DLOC/DLOM question

. hedged return question

. question about binomial interest rate tree

. Level 1, question of Fixed income

. Level 2 Alternative note page 110 question 32

收藏 分享

jbaldyga

Rank: 2

UID
222282 
帖子
333 
主题
70 
注册时间
2011-7-2 
最后登录
2014-6-28 
2#
发表于 2013-4-7 10:38 | 只看该作者
Thai Baht f = -1.25%
Thai I = 3%
f = Thai I - Philline I or -1.25 = 3 - X
solve for X: X = 3 - (-1.25) = 3 + 1.25 or 4.25%
since the PHP is a discount, f is a negative #.
Does that answer your Q?

TOP

Chuckrox8

Rank: 2

UID
222284 
帖子
304 
主题
67 
注册时间
2011-7-2 
最后登录
2016-4-19 
3#
发表于 2013-4-7 10:39 | 只看该作者
Not really, i guess i am a little slow on this!

TOP

koba

Rank: 2

UID
223280 
帖子
242 
主题
99 
注册时间
2011-7-11 
最后登录
2013-8-23 
4#
发表于 2013-4-7 10:40 | 只看该作者
Forward discount = 1.25% means
(F - S) / S = -1.25%
or rearrange above gives you: F / S = 98.75% (100% - 1.25%)
obviously because this is a discount, this % should be
Remember your formula:
F / S = (1 + Rc) / (1 + Rb)
Where F and S quoted as Base:Counter (peso to baht, so peso = base)
Rc = interest rate of “counter”
Rb = interest rate of “base”
so 98.75% = (1+3%) / (1 + Rb)
Rb = 4.30%
the above was the EXACT calculation. The approximation is the following:
forward differential = interest rate differential
-1.25% = Rcounter - Rbase (once again Rcounter is baht because we’re given “peso to bach, i.e., Peso:Baht)
-1.25% = 3% - Rbase
Rbase = 4.25%

TOP

towardsutopia21

Rank: 2

UID
223206 
帖子
198 
主题
153 
注册时间
2011-7-11 
最后登录
2013-9-14 
5#
发表于 2013-4-7 10:41 | 只看该作者
Thanks a lot!If you are in midtown I get you a beer! I think its awsome you post something and somebody answers it in a day!

TOP

返回列表
上一主题：Quant Schweser_Question ID#: 86494
下一主题：Schweser QBank Inter-Corp Investment Q