Dollar denominated deposit pays 5% interest rate, while pound denominated deposit pays 7% interest rate. Forward rate

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Dollar denominated deposit pays 5% interest rate, while pound denominated deposit pays 7% interest rate. Forward rate for dollars per pound is 2, while current exchange rate (spot rate) is 1.8.

a) Does the CIP hold?

b) At what forward rate does it hold?

c) At what spot rate does it hold?

Related Book For answer-question

Income Tax Fundamentals 2013

ISBN: 9781285586618

31st Edition

Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill

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Posted Date: May 17, 2023 02:48 AM

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Dollar denominated deposit pays 5% interest rate, while pound denominated deposit pays 7% interest rate. Forward rate

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Expert Answer:

a To check if the CIP holds we need to compare the interest rate differential with the forward premi... View the full answer

Income Tax Fundamentals 2013

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