The Formula for Covered Interest Rate Parity Is F (1+ ia) S * (1+ i;) where: id = The interest rate in the domestic currency or the base curre if = The interest rate in the foreign currency or the quoted curr S = The current spot exchange rate %3D F = The forward foreign exchange rate
The Formula for Covered Interest Rate Parity Is F (1+ ia) S * (1+ i;) where: id = The interest rate in the domestic currency or the base curre if = The interest rate in the foreign currency or the quoted curr S = The current spot exchange rate %3D F = The forward foreign exchange rate
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter6: Managing In The Global Economy
Section: Chapter Questions
Problem 6E
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Question
What is the reasoning behind dividing the Forward rate with the current spot rate. What is the reasoning behind it mathmatically what value do we get out of it
![The Formula for Covered Interest Rate Parity Is
F
(1+ ia)
* (1+ if)
S
where:
ia
The interest rate in the domestic currency or the base curre
is
= The interest rate in the foreign currency or the quoted curr
S = The current spot exchange rate
F = The forward foreign exchange rate](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fad6d3522-58fe-4a42-a237-8062bf310251%2F637c1c38-a6f3-40c5-b33d-d4e578f29f30%2Fandghilh_processed.jpeg&w=3840&q=75)
Transcribed Image Text:The Formula for Covered Interest Rate Parity Is
F
(1+ ia)
* (1+ if)
S
where:
ia
The interest rate in the domestic currency or the base curre
is
= The interest rate in the foreign currency or the quoted curr
S = The current spot exchange rate
F = The forward foreign exchange rate
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