IRP Relationship Assume that interest rate parity (IRP) exists. Assume this information provided by today’s Wall Street Journal:
Spot rate of Swiss franc = $.80
6-month forward rate of Swiss franc = $.78
12-month forward rate of Swiss franc = $.81
Assume that the annualized U.S. interest rate is 7 percent for a 6-month maturity and a 12-month maturity. Do you think the Swiss interest rate for a 6-month maturity is greater than, equal to, or less than the U.S. interest rate for a 6-month maturity? Explain.
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