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    Find out the nominal interest rate in U.S.

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    Assume that the following information is available as of today.

    U.S. Germany
    Real rate of interest required by investors 1% 1%
    Nominal interest rate -- 3%
    Spot rate -- ($/?)1.08
    One-year forward rate -- ($/?)1.12

    Find out the nominal interest rate in U.S. In your process for deriving the nominal interest rate, clearly explain which principle(s), i.e. parity, you are using.

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    Solution Preview

    Assuming Interest Rate Parity (IRP) holds,

    Forward Rate = (1 + ...

    Solution Summary

    The solution finds out the nominal interest rate in the U.S.