Essay
Suppose we observe the following 1-year interest rates:
Euro $ = 15%
Euro SF = 12%
The exchange rate is quoted as the dollar price of Swiss francs and is currently E = 0.40.
(a) Given the information above,what is the 12-month forward rate?
(b) Suppose the actual 12-month forward rate is not what you found from (a),but instead is $0.42. What would profit-seeking arbitrageurs do?
Correct Answer:
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(a) .15 - .12 = (F - .40)/.40,...View Answer
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Correct Answer:
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