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Calculating the interest rates by using IRP concept

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Assume that Interest Rate Parity holds. The spot rate for the Euro is $1.20 and the one year forward rate is $1.23. The annual rate of interest in Germany on annual deposits is 2.439%. What is the annual rate of interest on deposits in the United States?

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Solution Summary

Solution depicts the steps to calculate the interest rate by using concept of "Interest Rate Parity".

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Spot Rate of Euro=$1.20
Forward Rate of Euro=$1.23
Interest Rate in Foreign country=2.439%
Interest Rate in Home ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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