Annualized interest rates in the U.S.
January 7th, 2018
Annualized interest rates in the U.S. and France on January 1, 1991 are 9% and 13%,respectively. The spot value of the franc is 0.1109 per dollar.a) What is the expected exchange rate (franc/$) in one year?b) At what 180day forward rate will covered interest rate parity hold? [Note: You need to compute the 180 day interest rates to work out the solution.]c) At what one-year forward rate will covered interest rate parity hold?d) Suppose the one-year exchange rate is expected to increase to $0.15 due to lower U.S.inflation. Do you want to buy or sell forward?
