Real Interest Rates, Expected Inflation, IRP, and the Spot Rate The United States and the country of Rueland have the same real interest rate of 3 percent. The expected inflation over the next year is 6 percent in the United States versus 21 percent in Rueland. Interest rate parity exists. The one-year currency futures contract on Rueland’s currency (called the ru) is priced at $0.40 per ru. What is the spot rate of the ru?

FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698
FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698

Solutions

Chapter 8, Problem 38QA
Textbook Problem

Real Interest Rates, Expected Inflation, IRP, and the Spot Rate The United States and the country of Rueland have the same real interest rate of 3 percent. The expected inflation over the next year is 6 percent in the United States versus 21 percent in Rueland. Interest rate parity exists. The one-year currency futures contract on Rueland’s currency (called the ru) is priced at $0.40 per ru. What is the spot rate of the ru?

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