Assume that interest rate parity holds and that 90-day risk-free securities yield 5% in the United States and 5.3% in Germany. In the spot market, 1 euro equals $1.40. What is the 90-day forward rate? Is the 90-day forward rate trading at a premium or a discount relative to the spot rate?
Calculate the forward rate as follows:
Forward rate = spot rate *(1+Home interest rate) / (1+Foreign interest rate)
Forward rate = $1.40*(1+(5%*90/360)) / (1+(5.3%*90/360))
Forward rate = $1.40*(1.01250) / (1.01325)
Forward rate = 1.399
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Forward rate is less than the spot rate, forward rate is trading at discount.
Assume that interest rate parity holds and that 90-day risk-free securities yield 5% in the United...
Assume that interest rate parity holds. In the spot market 1 Japanese yen = $0.01081, while in the 90-day forward market 1 Japanese yen = $0.01084. In Japan, 90-day risk-free securities yield 2.1%. What is the yield on 90-day risk-free securities in the United States? Round your answer to two decimal places. Do not round intermediate calculations.
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