Ask Question
25 February, 14:13

Suppose the one-year forward $/€ exchange rate is $1.26 per euro and the spot exchange rate is $1.20 per euro. What is the forward premium on euros (the forward discount on dollars) ? What is the difference between the interest rate on one-year dollar deposits and that on one-year euro deposits (assuming no repayment risk) ?

+2
Answers (1)
  1. 25 February, 14:36
    0
    A. 5$

    B. The difference between the interest rate on one-year dollar deposits and that on one-year euro deposits (assuming no repayment risk) is 5%

    Explanation:

    A.

    The forward premium on euro is (1.26 - 1.20) / 1.20 = 0.05 or 5%

    B. The interest rate difference between one-year dollar deposits and one-year euro deposits (assuming no repayment risk) will be 5 percent because the interest difference must equal the forward premium on euro against dollars when the covered interest parity holds.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Suppose the one-year forward $/€ exchange rate is $1.26 per euro and the spot exchange rate is $1.20 per euro. What is the forward premium ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers