It is often claimed that the forward exchange rate is set by arbitrage to satisfy (covered) interest rate parity
Explain how interest rate parity can be satisfied and how the forward exchange rate can be set by speculators in reference to the expected future spot exchange rate.
Interest rate parity is a no arbitrage relation between 4 variables, the spot and forward exchange rates and the interest rates on the two currencies. If the forward exchange rate is set by speculators in reference to the expected future spot exchange rate, the current spot rate or the two interest rates can adjust to satisfy interest rate parity. The speculative dimension of trading must also be satisfied in equilibrium.
You might also like to view...
Calculate answers to the following scenarios: a. To what amount will an $800 deposit grow, assuming an APR of 9 percent paid annually, 5 years, and simple interest? b. To what amount will a $500 deposit grow, assuming an APR of 10 percent paid semiannually, three years, and simple interest?
Maddox is emotional, likes to present possibilities, and is focused on big-picture projects. Overall, Maddox is using ______.
a. left-brain thinking b. self-leadership c. right-brain thinking d. self-rewarding
Why is the process of workflow analysis important to HRM?
What will be an ideal response?
________ is the analysis of the effect of parameter changes on the optimal solution
Fill in the blank with correct word.