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    Interest rate parity

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    Assume that interest rate parity holds and that 90-day risk-free securities yield 5 percent in the United States and 5.3 percent in Germany. In the spot market, 1 euro equals $0.08 dollar.

    A) Is the 90-day forward rate trading at a premium or discount relative to the spot rate?
    B) What is the 90-day forward rate?

    © BrainMass Inc. brainmass.com June 3, 2020, 9:19 pm ad1c9bdddf
    https://brainmass.com/business/interest-rates/interest-rate-parity-176272

    Solution Preview

    Assume that interest rate parity holds and that 90-day risk-free securities yield 5 percent in the United States and 5.3 percent in Germany. In the spot market, 1 euro equals ...

    Solution Summary

    The expert calculates forward rate using Interest rate parity condition.

    $2.19

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