Question

Suppose a bank quotes S = $1.1045/€. The annualized risk-free interest rates are 4% and 6%...

Suppose a bank quotes S = $1.1045/€. The annualized risk-free interest rates are 4% and 6% in the U.S and Germany, respectively. Find the approximate forward rate for the euro. Do not write any symbol. Make sure to round your answers to the nearest 100th decimal points. For example, write 1.2345 for $1.2345/€.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1
Particulars Amount
Spot Rate                 1.1045
Hi 4.0000%
Fi 6.0000%
Home Country United States
Foreign Country Germany
Forward rate after ( in Years) 1
According to Int Rate parity Theorm,
Fwd rate After 1 Years = Spot rate * [ ( 1 + Hi ) ^ n ] / [ ( 1 + Fi ) ^ n ]
= 1.1045 * [ ( 1 + 0.04) ^ 1 ] / [ ( 1 + 0.06 ) ^ 1 ]
= 1.1045 * [ ( 1.04) ^ 1 ] / [ ( 1.06 ) ^ 1 ]
= 1.1045 * [ 1.04 ] / [ 1.06 ]
= 1.1045 * [ 0.9811 ]
= 1.0837

Forward Rate for the Euro = 1.0837

Pls do rate, if the answer is correct and comment, if any further assistance is required.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The annualized US risk-free rate is 8% and the Germany risk-free rate is 5%. Assume that...
The annualized US risk-free rate is 8% and the Germany risk-free rate is 5%. Assume that any period rates less than a year can be interpolated (i.e. if you invested for 6 months then you would receive 4% in the US). The spot quote is €0.80/$ while the 3-month forward quote is €0.7994/$. You can borrow either $1,000,000 or €800,000. According to IRP, is the forward quote correct? If not, what should it be? If the forward quote is not...
The spot exchange rate is $1.16 per euro, and the six-month risk-free interest rates are 2%...
The spot exchange rate is $1.16 per euro, and the six-month risk-free interest rates are 2% in the U.S. and 1% in the eurozone, both with continuous compounding. What is the six-month forward rate?
Use the data table to answer questions 9, 10, and 11: EURUSD Spot Quotes Bank Bid...
Use the data table to answer questions 9, 10, and 11: EURUSD Spot Quotes Bank Bid Ask Citibank 1.1930 1.1935 HSBC 1.1935 1.1940 JP Morgan Chase 1.1925 1.1930 EUR/USD 6-month Forward Quotes Bank Bid Ask Barclays Bank 1.1870 1.1875 Royal Bank of Canada 1.1900 1.1905 6-month Interest Rates (annualized - simple interest) Bank Currency Interest Rate Bank of America U.S. Dollar 0.50% Deutsche Bank Euro 1.50% 10) Assume that you are a U.S. corporation and need to buy EUR 3,000,000...
Suppose that three month interest rates (annualized) in Japan and the US are 7% and 9%...
Suppose that three month interest rates (annualized) in Japan and the US are 7% and 9% respectively. If the spot rate yen 142 :$1 and the 90 day forward rate is the yen 139 : $1 what is the three month arbitrage profit? A. 5.5% B. 1.7% C. 2.6% D. 1.2%
The current Dollar-Pound exchange rate is 1.60 dollars per British Pound. The U.S. and British risk-free...
The current Dollar-Pound exchange rate is 1.60 dollars per British Pound. The U.S. and British risk-free interest rates (annualized, continuously compounded) are 5% and 7.5%, respectively. Answer the following questions. A. What is the no arbitrage forward price of the British Pound for a 6-month forward contract? B. Suppose the actual forward price is 1.65 dollars per British Pound. Illustrate the arbitrage opportunity.
Assume that interest rate parity holds and that 90-day risk-free securities yield 6% in the United...
Assume that interest rate parity holds and that 90-day risk-free securities yield 6% in the United States and 6.2% in Germany. In the spot market, 1 euro equals $1.36. What is the 90-day forward rate? Do not round intermediate calculations. Round your answer to four decimal places. $ Is the 90-day forward rate trading at a premium or discount relative to the spot rate? The 90-day forward rate is trading at a relative to the spot rate.
Suppose that the interest rates in the U.S. and Germany are equal to 5%, that the...
Suppose that the interest rates in the U.S. and Germany are equal to 5%, that the forward (one year) value of the € is F$/€ = 1$/€ and that the spot exchange rate is E$/€ = 0.75$/€. Please answer the following questions by explaining all steps of your analysis: Does the covered interest parity condition hold? Why or why not? How could you make a riskless profit without any money tied up assuming that there are no transaction costs in...
A bank is quoting suppose the market condition is summarised as follows: 3 Months interest rates...
A bank is quoting suppose the market condition is summarised as follows: 3 Months interest rates in US = 8%p.a 3 Months interest rate in Germany =5%p.a Current spot rate Euros 0.80/$ 3 months forward exchange rate Euros 0.7994/$ Required Execute a CIA scheme, assuming an arbitrageur can borrow $ 1 Million or the equivalent of Euros 800,000
Suppose you observe the following exchange rates: S($/SFr) = 0.85 (i.e. SFr 1 = $.85) The...
Suppose you observe the following exchange rates: S($/SFr) = 0.85 (i.e. SFr 1 = $.85) The one-year forward rate is F1($/SFr) = 0.935 (i.e. SFr 1 = $.935). The risk-free interest rate in the U.S. is 5% and in Switzerland it is 2%. How can a dollar-based investor make money?
4. Suppose that you can borrow or lend for one year at 4% in the U.S....
4. Suppose that you can borrow or lend for one year at 4% in the U.S. in $US and you can borrow or lend in Germany in euros at 2%. Assume there is no risk of default. You see in the newspaper that the spot exchange rate is $1 = .9 euros and the one-year forward exchange rate is $1 = .85 euros. Are there riskless profits to be made? What transactions would you undertake to make such profits? If...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT