Forward Rates for Different Time Horizons Assume that interest rate parity exists, along with the following information: Spot rate of British pound = $ 1.80 6-month forward rate of pound = $ 1.82 12-month forward rate of pound = $ 1.78 Is the annualized 6 -month U.S. risk-free interest rate greater than, less than, or equal to the British risk-free interest rate? Is the 12 -month U.S. risk-free interest rate greate than, less than, or equal to the British risk-free intere rate?

FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698
FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698

Solutions

Chapter 7, Problem 39QA
Textbook Problem

Forward Rates for Different Time Horizons Assume that interest rate parity exists, along with the following information:

Spot rate of British pound = $ 1.80

6-month forward rate of pound = $ 1.82

12-month forward rate of pound = $ 1.78

  1. Is the annualized 6 -month U.S. risk-free interest rate greater than, less than, or equal to the British risk-free interest rate?
  2. Is the 12 -month U.S. risk-free interest rate greate than, less than, or equal to the British risk-free intere rate?

This textbook solution is under construction.

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