If interest rate parity is satisfied and the interest rate in the U. S. is greater than the interest rate in Japan we can conclude that:


the yen trades at a forward premium.



the yen trades at a forward discount.

The term “covered” in covered interest arbitrage indicates that:


the default risk is insured.



there is no exchange rate risk exposur
If the pound interest rate is 1% p.a., and the dollar interest rate is 5% p.a., what is the magnitude of the forward premium or discount for the pound? (positive for premium and negative for discount)











3.25%
An importer of grain into Germany from the United States has payables of $100,000 due in 90 days. The spot rate is $1.15 per euro. The interest rate in Germany is 2% p. a. and the interest rate in the U. S. is 4% p.a. If a money market hedge is to be used what is the amount in euros the importer has to set aside today? (The interest rates for 90 days will be 0.5% in Germany and 1% in the U. S.)











86,096
An importer of grain into Germany from the United States has payables due in 90 days. The spot rate is $1.15 per euro. The interest rate in Germany is 2% p. a. and the interest rate in the U. S. is 4% p.a. If a money market hedge is to be used what is the effective forward rate? (The interest rates for 90 days will be 0.5% in Germany and 1% in the U. S.)











1.1405
The current spot rate is $1.15 per euro. The interest rate in Germany is 2% p. a. and the interest rate in the U. S. is 4% p.a. What is the breakeven spot exchange rate next year for a speculator?











1.18
The interest rates (bid and offered) in the U. S. are 2.5% and 2.75%. The corresponding rates in Germany are 1.5% and 1.6%. The spot exchange rate is quoted as $1.25 (bid) – $1.28 (ask) per euro. Compute the amount in dollars needed today in order to have 100 euros at the end of the year. Round the answer to two decimal places and enter it without the currency symbol.
The interest rates (bid and offered) in the U. S. are 2.5% and 2.75%. The corresponding rates in Germany are 1.5% and 1.6%. The spot exchange rate is quoted as $1.25 (bid) – $1.28 (ask) per euro. Compute the forward rate (dollars per euro) achievable in a synthetic one year forward contract to buy euros with dollars. Round the answer to four decimal places and enter it without the currency symbol.
The interest rates (bid and offered) in the U. S. are 2.5% and 2.75%. The corresponding rates in Germany are 1.5% and 1.6%. The spot exchange rate is quoted as $1.25 (bid) – $1.28 (ask) per euro. Compute the amount in euros needed today in order to have $100 at the end of the year. Round the answer to two decimal places and enter it without the currency symbol.
The interest rates (bid and offered) in the U. S. are 2.5% and 2.75%. The corresponding rates in Germany are 1.5% and 1.6%. The spot exchange rate is quoted as $1.25 (bid) – $1.28 (ask) per euro. Compute the forward rate (dollars per euro) achievable in a synthetic one year forward contract to sell euros for dollars. Round the answer to four decimal places and enter it without the currency symbol.




