Separated by more than 3000 nautical miles and five time zones, money and foreign exchange markets in both London and New York are very efficient The following information has been collected from the respective areas Assumptions London New York Spot exchange rate 1 3264 1 3264 1 year Treasury bill rate 3 9 4 5 Estimate todays 1 year forward exchange rate between the dollar and the pound assuming the Interest Rate Parity condition holds Calculate the forward premium or discount on the pound

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Question: Separated by more than 3000 nautical miles and five time zones, money and foreign exchange markets in both London and New York are very efficient.

Separated by more than 3000 nautical miles and five time zones, money and foreign exchange markets in both London and New York are very efficient. The following information has been collected from the respective areas:

Assumptions	London	New York
Spot exchange rate	1.3264	1.3264
1-year Treasury bill rate	3.9%	4.5%

Estimate todays 1-year forward exchange rate between the dollar and the pound assuming the Interest Rate Parity condition holds. Calculate the forward premium or discount on the pound.

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