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

Solution Summary

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

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o Conduct a sensitivity analysis, based on the following questions:

What if funds are blocked? How does this affect the parent organization?

What if the subsidiary provided funds?

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What happens if the country you chose provides incentives to invest? Now that your organization is profitable, the country is taking incentives back. How do you determine the residual value at the end of the project life?

How is the value of an organization determined from the following perspectives?

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o Economic decision to change locations
o Nationalization or confiscation of organization

Format your paper according to APA standards.

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