(1) Pick two countries: UK and USA and use Bloomberg to find the spot exchange rate, 1-year forward rate, each country’s one-year interest rate at the end of August 2016, and Prove if the IRP condition exists or not.
Interest Rate Parity
P=(f-s)/s=[ (1+in)/ (1+if)]-1
(2) If the IRP doesn’t exist, offer some possible explanations.
(3) Find the Spot rate between GBP and US$ at the end of Aug 2017.
Was the 1-year forward rate at the end of August 2016 a good predictor
for the spot rate at the end of 2017?
Field of study:
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