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    Interest rate on different time of maturity

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    Assume that interest rate parity (IRP) exists. Assume this information is
    provided by today's Wall Street Journal.

    Spot rate of Swiss franc = $.80
    6-month forward rate of Swiss franc = $.78
    12-month forward rate of Swiss franc = $.81

    Assume that the annualized U.S. interest rate is 7% for a six-month maturity and a 12-month maturity. Do you think the Swiss interest rate for a 6-month maturity is greater than, equal to, or less than the U.S. interest rate for a 6-month maturity? Explain.

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    Solution Preview

    According to interest rate parity, the difference in interest rates must equal the difference between the future and current exchange rates.
    F0 = ...

    Solution Summary

    This post discusses interest rate on different time of maturity.

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