Question

eturn to Site 2 of 5) The spot rate is given to you as 1.0983 USD/EUR. The 3-month forward rate is provided by a broker as 1.1013 USD/EUR. The 3-month treasury bil rate in the United States is 0.08%. What is the 3-month Euro treasury bill rate that would be in equilibrium with the rest of these data? -0.1926 % 0.1926 % -0.001926% 0.001926 % IAm Finished/Submit for Grade Skip Question Save Answer Note: Clicking any button other than the Save Answer button will NOT save any changes to your anewerst For questions or concems regarding this onine publicatior, please contact webeport S28 F2

Answer 1

Answer-

The forward rate divided by spot rate = Forward rate ( USD/Euro) / Spot rate ( USD/Euro)
By substituting the values we get

The forward rate divided by spot rate = 1.1013 / 1.0983 = 1.00273

The three month Euro treasury bill rate that will be in equilibrium with the rest of the date
[ 1+ R ( Euro) ] = 1.00273 / [ 1+ R (US) ]
= 1.00273 / (1+ 0.08 %)
= 100273 / 1.0008
= 1.0019285
[ 1+ R ( Euro) ] = 1.001928
R (Euro) = 1.001928 - 1
R (Euro) = 0.001928
R (Euro) = 0..1928 %

Hence the first option is correct.