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Rishaan Shaikh
on Dec 09, 2024

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A risk-free asset in the U.S. is currently yielding 3 % while a Canadian risk-free asset is yielding 2 %. The current spot rate is C$.92 is equal to US$1. What is the approximate two-year forward rate if interest rate parity holds?

A) C$.9017
B) C$.9088
C) C$.9136
D) C$.9189
E) C$.9272

Interest Rate Parity

A theory in financial economics that suggests the difference between the interest rates of two countries is equal to the difference between the forward exchange rate and the spot exchange rate.

Forward Rate

The agreed-upon price for a financial transaction that will occur at a future date, used primarily in foreign exchange and interest rate markets.

Spot Rate

The present market rate at which a specific asset, like a currency, commodity, or security, is available for purchase or sale with immediate delivery.

  • Acquire knowledge on the principle of interest rate parity and its effects on forward currency rates.
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