Is there any violation of CIP? (b) Calculate the covered margin (going short on the AUD). (c) Calculate the interest parity forward rate and compare it with the actual forward rate.
Is there any violation of CIP? (b) Calculate the covered margin (going short on the AUD). (c) Calculate the interest parity forward rate and compare it with the actual forward rate.
Chapter7: International Arbitrage And Interest Rate Parity
Section: Chapter Questions
Problem 11QA
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You are given the following information:
Spot exchange rate (AUD/EUR) 1.60
One-year forward rate (AUD/EUR) 1.62
One-year interest rate on the Australian dollar 8.5%
One-year interest rate on the euro 6.5%
(a) Is there any violation of CIP?
(b) Calculate the covered margin (going short on the AUD).
(c) Calculate the interest parity forward rate and compare it with the actual forward rate.
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