IRP Relationship Assume that interest rate parity exists, along with the following information: Spot rate of Swiss franc = $ 0.80 6 − month forward rate of Swiss franc = $ 0.78 12-month forward rate of Swiss franc = $ 0.81 Assume that the annualized U.S. interest rate is 7 percent for a 6 -month maturity and a 12 -month maturity. Do you think the Swiss interest rate for a 6-month maturity is greater than, equal to, or less than the U.S. interest rate for a 6 -month maturity? Explain.

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 45QA
Textbook Problem

IRP Relationship Assume that interest rate parity exists, along with the following information:

Spot rate of Swiss franc = $ 0.80

6 month forward rate of Swiss franc = $ 0.78 12-month forward rate of Swiss franc = $ 0.81

Assume that the annualized U.S. interest rate is 7 percent for a 6 -month maturity and a 12 -month maturity. Do you think the Swiss interest rate for a 6-month maturity is greater than, equal to, or less than the U.S. interest rate for a 6 -month maturity? Explain.

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