Suppose that India's 10-month bond rate is 4.536%(annualized), whille that of the U.S. is 1.325%. The current spot rate is 76.2 ruppees/$. The 10-month forward rate is 76.5 ruppees/$. This violate parity condition, give a possible explanation for why this parity condition doesn't hold. (Using formula to calculate to explain could be better)

Answer rating: 100% (QA)

To determine whether the parity condition holds we can compare the interest rate differentials between the two countries with the forward exchange rat... View the full answer