On May 22, 2012, The Wall Street Journal reported the following (for May 21):
Prime interest rates: ………………United States 3.25 percent; Switzerland 0.52 percent;
Japan 1.475 percent
Spot rates: ………………………..$1.0670 5 1 Swiss franc; 79.31 Japanese yen 5 $1
3-month forward rates: …………..$1.0685 5 1 Swiss franc; 79.24 Japanese yen 5 $1
(a) In terms of the dollar, was the Swiss franc at a forward discount or a forward premium? By what percent? Looking at the prime rates of the United States and Switzerland, is your calculated percentage discount/premium reasonably consistent with covered interest parity? Why or why not?
(b) In terms of the Japanese yen, was the U.S. dollar at a forward discount or a forward premium? By what percent? Looking at the prime rates of Japan and the United States, is your calculated percentage discount/premium reasonably consistent with covered interest parity? Why or why not?