a are given that the annual Australian dollar interest rate is 1% and the erest rate is 2.5%. The spot rate for the United States dollar is $A1.20. (a) Using interest rate parity, calculate the forward rate premium of th with respect to the Australian dollar. (b) Using your answer to (a), calculate the one-year forward rate.
a are given that the annual Australian dollar interest rate is 1% and the erest rate is 2.5%. The spot rate for the United States dollar is $A1.20. (a) Using interest rate parity, calculate the forward rate premium of th with respect to the Australian dollar. (b) Using your answer to (a), calculate the one-year forward rate.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![You are given that the annual Australian dollar interest rate is 1% and the United States annual
interest rate is 2.5%. The spot rate for the United States dollar is $A1.20.
(a) Using interest rate parity, calculate the forward rate premium of the United States dollar
with respect to the Australian dollar.
(b) Using your answer to (a), calculate the one-year forward rate.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F67abc2e1-9065-42f6-ae46-0b6cc8bf5085%2Fdfecb0c4-2e19-48d3-903d-4f6a97d47a8c%2Fzprpyvk_processed.jpeg&w=3840&q=75)
Transcribed Image Text:You are given that the annual Australian dollar interest rate is 1% and the United States annual
interest rate is 2.5%. The spot rate for the United States dollar is $A1.20.
(a) Using interest rate parity, calculate the forward rate premium of the United States dollar
with respect to the Australian dollar.
(b) Using your answer to (a), calculate the one-year forward rate.
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