Assume that interest rate parity (IRP) exists, along with the following information: Spot rate of British pound
Question:
Spot rate of British pound = $1.80
6-month forward rate of pound=$1.82
12-month forward rate of pound=$1.78
a. Is the annualized 6-month U.S. risk-free interest rate above, below, or equal to the British risk-free interest rate?
b. Is the 12-month U.S. risk-free interest rate above, below, or equal to the British risk-free interest rate?
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a The 6month US riskfree interest rate must be above the 6...View the full answer
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