3.1) Assume that 90-day U.S. securities have a 2.4% (rh) annualized interest rate whereas 90-day Swiss securities have a 3%(rf) annualized interest rate. In the spot market, 1 U.S. dollar can be exchanged for 1.15 Swiss francs. If interest rate parity holds, what is the 90-day forward rate exchange between U.S. and Swiss francs?
is the Swiss franc selling at a premium or discount on the forward rate?
Forward Rate = Spot Rate * [(1 + rf) / (1 + rh)]n
= 1.15 * [(1 + 0.03) / (1 + 0.024)]
= 1.15 * 1.0059 = 1.16
So, 90-day forward rate is 1.16 Swiss Francs per 1 US Dollar
Swiss Franc is selling at a premium on the forward rate.
3.1) Assume that 90-day U.S. securities have a 2.4% (rh) annualized interest rate whereas 90-day Swiss...
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