# The current exchange rate is $1/16.52 Chinese Yuan. Currently the 1 year US treasury is paying 3%...

## Question:

The current exchange rate is $1/16.52 Chinese Yuan. Currently the 1 year US treasury is paying 3% and the Chinese bond market is paying 79%.

What should the one year forward rate be?

## Forward Exchange Rate:

The forward exchange rate is the rate at which one currency can exchange for another currency at a future date. This rate would be the delivery price at a futures contract or forward contract.

## Answer and Explanation: 1

Become a Study.com member to unlock this answer! Create your account

View this answerWe can use the covered interest parity to compute the forward rate one year from now. According to the parity, investing in U.S. or China should...

See full answer below.

#### Ask a question

Our experts can answer your tough homework and study questions.

Ask a question Ask a question#### Search Answers

#### Learn more about this topic:

from

Chapter 20 / Lesson 3Learn about interest rate parity. Explore uncovered interest rate parity and covered interest parity. Read the importance and use the interest rate parity formula.

#### Related to this Question

- Spot exchange rate: 6.85 CNY/USD Chinese inflation rate: 6% U.S. inflation rate: 2% Compute the 1-year forward exchange rate for Chinese Yuan to U.S. Dollars
- The spot rate for the Chinese RMB and US dollar is RMB 6.36/$. Over the year inflation in China is 1.60% and US inflation is 2.90%. If purchasing power parity holds, at year-end the exchange rate shou
- The current US $ Canadian dollar (C$) exchange rate is $0.75/C$. The yield on a one-year US Treasury security is 1%, and the yield on the one-year Canadian Treasury security is 1.5%. The one-year forward rate (F_s/cs) is $0.80/c$. Based on these quotes, d
- The current US Canadian dollar (C$) exchange rate is $0.75/C$. The yield on a one-year US Treasury security is 1%, and the yield on the one-year Canadian Treasury security is 1.5%. The one-year forward rate (F_s/cs) is $0.80/C$. Based on these quotes, doe
- Suppose that the current exchange rate between the yen and the dollar is \yen 100 = $1 and that the interest rate is 4% on a one-year bond in Japan and 3% on a comparable bond in the United States. Ac
- A U.S. Investor wants to invest $5,000 in China at a 6% interest rate. Today the exchange rate is 6.88 CNY/USD. How many CNY will the investor have in one year?
- The 90-day forward exchange rate is .01073033 dollars per yen. If this forward rate represents a per year premium of 2.5% from the current spot rate, what is the current spot exchange rate? a) .01057
- The 30-day forward exchange rate is .01073033 dollars per yen. If this forward rate represents a per year discount of 2.5% from the current spot rate, what is the current spot exchange rate?
- Describe how you would calculate a 5-year forward exchange rate of yen per dollar if you knew the current spot exchange rate and the prices of 5-year pure discount bonds denominated in yen and dollars. Explain why this has to be the market price.
- One year ago the spot rate of US dollars for Canadian dollars was US$1/C$1. Since then, US inflation has gone up 4% greater than Canada. Based on PPP the current spot exchange rate of US$1/C$1 is what? A) US$.96/C$1 B) US$1/C$1 C) US$1.04/C$1 D) Relative
- 1) A U.S. investor bought a 6 year German federal bond (Bund), the face value of the bonds is 1,000 EUR, the coupon is 1.5%, and the price 1,125 EUR. At the time of buying the bond, the exchange rate
- If the 1-year U.S. Treasury bill rate is 7.0 percent, the spot rate between U.S. dollars and British pounds is 1 Pound = $1.69, and the 90-day forward rate is 1 Pound = $1.68, what rate of interest is expected on British Treasury bills, assuming that inte
- One year ago, you converted $1,000 to yen at the rate of 125 yen to $1 and invested in Japanese securities. You just sold the securities for 137,500 yen. The current exchange rate is 111 yen to $1. W
- The current exchange rate is $2/pound. The annual interest rate, on 60-day US-dollar denominated bonds, is 5%, and the annual interest rate on 60-day pound-denominated bonds, is 11%. Investors current
- If the current exchange rate is $2/pound , the 1-year forward exchange rate is $2.2/pound, and the interest rate on British government bills is 4% per year. What risk-free dollar-denominated return ca
- If the current exchange rate is $1.6/pound, the 1-year forward exchange rate is $1.8/pound, and the interest rate on British government bills is 7% per year. What risk-free dollar-denominated return c
- If the current exchange rate is $2/pound ,the 1-year forward exchange rate is $2.1/pound, and the interest rate on British government bills is 8% per year. What risk-free dollar-denominated return can
- The spot rate for Chinese yuan per Canadian dollar is 6.4440. If the Canadian interest rate is 2.50% and the Chinese interest rate is 3.00%, the 3-month no-arbitrage forward rate is closest to __________.
- The current British Pound to Euro exchange rate is .86/ . In one year, the exchange rate becomes .75/ . In percent, how much did the depreciating currency fall?
- Exchange Rates The exchange rate for the Australian dollar is currently A$1.40. This exchange rate is expected to rise by 10 percent over the next year. a. Is the Australian dollar expected to get stronger or weaker? b. What do you think about the rela
- Estimate the exchange rate in the next two years, if the US inflation rate is 5%, and that of Canada is 4%. The current spot rate is $1.0585. A. $1.0790 B. -$1.0790 C. $1.0384 D. $1.0384 E. none
- A 27-year German government bond (bund) has a face value of \unicode{0x20AC} 250 and a coupon rate of 6% paid annually. Assume that the interest rate (in euros) is equal to 7.70% per year. What is the
- Suppose the spot $/yen exchange rate is 0.008, the 1 year continuously compounded dollar-denominated rate is 5% and the 1 year continuous compounded yen-denominated rate is 1%. Suppose the 1-year forw
- If the spot exchange rate between U.S. Dollar and Chinese Yuan is $1 = 6.70 Yuan and China agrees to let Yuan appreciate by 10%, what is the new exchange rate after the appreciation?
- One year ago, the spot exchange rate between USD and GBP was S - 1 $/Pound = $1.50/Pound. Today- the spot rate is S 0 $/Pound = $1.30/Pound. Inflation during the year was p $ = 2 percent and p Pound = 3 percent in the US and UK, respectively. a. What was
- The spot Yen/$US exchange rate is Yen 119.795/$US, and the one-year forward rate is Yen 114.571/$US. If the annual interest rate on dollar CDs is 6%, what annual interest rate would you expect on Yen
- If the current exchange rate is $1.65/Pound, the 1-year forward exchange rate is $1.85/Pound, and the interest rate on British government bills is 7% per year. What risk-free dollar-denominated return can be locked in by investing in the British bills?
- If last year's Euro/US$ rate was 0.6780 and the current rate is 0.7455, what is the change in currency (appreciation or depreciation)? A. -6.70% B. 6.70% C. -9.49% D. 9.49% E. none
- Suppose that the annual interest rate is 2.5 per cent in Korea and 2.3 per cent in Germany, and that the spot exchange rate is Won 1933.2/ euro and the forward exchange rate, with one-year maturity,
- Suppose that the current exchange rate is 1.50 Euro = 1 Pound, but it is expected to be 1.35 Euro = 1 Pound in one year. If the current interest rate on a one-year government bond in the United King
- The spot exchange rate for Indian Rupees is Rs 41/$. The one year forward exchange rate is Rs 42/$ the one year U.S. Interest rate is 4%. What is the implied one year interest rate in India? A) 6.77%
- The exchange rate for Chinese yuan (CNY) per euro (EUR) changed from CNY/EUR 8.1588 to CNY/EUR 8.3378 over a 3-month period. It is most accurate to state that the __________.
- What is the value in dollars of a derivative that pays off 10,000 sterling in 1 year provided that the dollar/sterling exchange rate is greater than 1.5000 at that time? The current exchange rate is 1
- The current U.S. dollar/yen spot rate is 125 yen/$. If the 90 day forward exchange rate is 127 yen/$ then the yen is selling at a per annum
- The interest rate in Great Britain is 5.0 percent per year and the interest rate in the USA is 8.0 percent. If the spot exchange rate is 1.5 dollars per pound, what is the price of a 10-month forward contract to buy the British pound? a. 1.5380 b. 1.682
- The following rates are available in the markets: Current spot exchange rate: $1.00/SFr Current 30-day forward exchange rate: $1.010/SFr Annualized interest rate on 30-day dollar-denominated bonds:
- The Current Exchange Rate between Japan and U.K. is One British Pound Equals 150 Japanese Yen. The one year Annual Interest Rate in Japan is 1%, while the Annual Interest Rate in U.K. is 4%. Given thi
- The current British Pound to Euro exchange rate is .86/ . In one year, the exchange rate becomes .75/ . Which currency depreciated?
- The current spot exchange rate is 3.75 BRL per US dollar, the one-year forward rate is 3.95, and the one-year US interest rate is 2%. a. The implied interest rate offered by the BRL forward contract is 5.3%. b. The implied interest rate offered by the BRL
- The current spot exchange rate is 3.75 BRL per US dollar, the one-year forward rate is 3.95, and the one-year US interest rate is 2%. a. The implied interest rate offered by the BRL forward contract is 5.3%. b. The implied interest rate offered by the B
- You noticed the current spot exchange rate is $1.50/pound and the 1-year forward exchange rate is $1.60/pound. The 1-year interest rate is 5.4 percent in dollars and 5.2 percent in pounds. Assuming y
- The 5-year US dollar interest rate is 3% and the 5-year Russian ruble interest rate is 8%. The spot exchange rate is RUB25/$ and the 5-year forward exchange rate is RUB30/$. Is a covered interest arb
- The current British Pound to Euro exchange rate is .86/ . In one year, the exchange rate becomes .75/ . Which currency appreciated?
- The current spot exchange rate is $1.55/pound and the three-month forward rate is $1.50/pound. Based on your analysis of the exchange rate, you are confident that the spot exchange rate will be $1.52
- The spot exchange rate for CHF/EUR is 0.8342 and the 1-year forward quotation is -0.353%. The 1-year forward exchange rate for EUR/CHF is closest to __________.
- Suppose that 1- and 2-year silver forward prices are $22 and $23 per oz., respectively. The 1- and 2-year interest rates are 6% and 6.5%. What is the swap price for this strip of forward?
- Suppose the spot exchange rate for the Hungarian forint is HUF 221.53. The current one-year U.S. interest rate is 4.9% and the current Hungarian one-year interest rate is 8.6%. a. What is the one-year
- The Hong Kong dollar has long been pegged to the U.S. dollar at HK7.80/$. When the Chinese yuan was revalued in July 2005 against the U.S. dollar from Yuan8.28/$ to Yuan 6.56/$, how did the value of t
- Explain how to calculate the foreign exchange rate one year from now if one knows what the foreign exchange rate is today.
- Currently, the spot exchange rate is $1.50 and the three-month forward exchange rate is $1.52. The interest rate is 8.0% per year in the U.S. and 5.8% per year in the U.K. Assume that you can borrow a
- One year Treasury bills currently earn 3.45%. One year Treasury bill rates will increase to 3.65%. If the unbiased expectations theory is correct, what should the current rate be on 2 year Treasury se
- Suppose that the one year interest rate is 3% in Italy, the spot exchange rate is $1.20/Euro, one year forward exchange rate is $1.18/Euro. What must the one year interest rate be in the United States
- Suppose that the current spot exchange rate is euro 1.50 / pound and the one-year forward exchange rate is euro 1.60 /pound. The one-year interest rate is 5.4% in euros and 5.2% in pounds. You can bor
- The spot Euro:$ is equal to 1.1795. The one-year interest rates on the Eurocurrency market are 4% in euros and 5% in U.S. dollars. What is the one-year forward exchange rate? A. 1.1683 B. 1.1908 C. 1.1895 D. 1.1913
- What is the value in dollars of a derivative that pays off 10,000 sterling in one year provided that the dollar-sterling exchange rate is greater than 1.5000 at that time? The current exchange rate is 1.4800. The dollar and sterling interest rates are 4%
- The one-year Treasury (risk-free) interest rate in the U.S. is presently 6%, while Switzerland's one-year Treasury interest rate is 13%. The spot rate of the Swiss franc is $.80. Assume that you believe in the international Fisher effect. You will receive
- The current exchange rate between the euro and the US $ is $1.1825/Euro. If the euro has declined by 4% over the last 1 year, what was the exchange rate 1 year ago?
- Suppose we have the following Treasury bill returns and inflation rates over an eight year period: | Year | Treasury Bills | Inflation | 1 | 7.55% | 9.02% | 2 | 8.29 | 12.69 | 3 | 6.15 | 7.24 |4
- Suppose we have the following Treasury bill returns and inflation rates over an eight year period: Year ; Treasury Bills ; Inflation ; 1 ; 7.96 ; 9.57 ; 2 ; 8.76 ; 13.22 ; 3 ; 6.59 ; 7.71; 4 ; 5.74 ;
- Suppose we have the following Treasury bill returns and inflation rates over an eight year period: || Year || Treasury Bills || Inflation | 1 | 9.47 | 11.32 | 2 | 10.35 | 14.93 | 3 | 8.08 | 9.28 | 4
- Currently, the spot exchange rate is $1.50/British pound and the three-month forward exchange rate is $1.52/British pound. The three-month interest rate is 8.0% per annum in the U.S. and 5.8% per annu
- Suppose we have the following Treasury bill returns and inflation rates over an eight year period . Year Treasury Bills Inflation 1 8.11% 9.83% 2 8.92 13.36 3 6.74 7.87 4 5.88 5.61 5 6.32 7.63 6 8.57
- Six-month T-bills have a nominal rate of 7%, while default free Japanese bonds that mature in 6 months have a nominal rate of 5.5%. In the spot exchange market, 1 yen equals $0.009. If interest rate parity holds, what is the 6-month forward exchange rate?
- The spot exchange rate for Indian Rupees is Rs 44/$. The one-year forward exchange rate is Rs 46/$ and the one-year U.S. interest rate is 5%. What is the implied one-year interest rate in India? A) 9
- One year ago, the nominal exchange rate for USD/EUR was 1.300. Since then, the real exchange rate has increased by 3%. This most likely implies that: A. the nominal exchange rate is less than USD/EUR 1.235. B. the purchasing power of the euro has increa
- If the spot rate for Japanese Yen is 80 Yean equals 1 US $, and the annual interest rate on fixed rate one-year deposits of Yen is 1% and for US$ is 2.5%, what is the eight-month forward rate for one dollar in terms of Yen?
- Six-month T-bills have a nominal rate of 6%, while default-free Japanese bonds that mature in 6 months have a nominal rate of 2.5%. In the spot exchange market, 1 yen equals $0.0105. If interest rate
- Six-month T-bills have a nominal rate of 4%, while default-free Japanese bonds that mature in 6 months have a nominal rate of 3%. In the spot exchange market, 1 yen equals $0.0083. If interest rate pa
- Six-month T-bills have a nominal rate of 6%, while default-free Japanese bonds that mature in 6 months have a nominal rate of 3%. In the spot exchange market, 1 yen equals $0.0088. If interest rate pa
- Six-month T-bills have a nominal rate of 7%, while default free Japanese bonds that mature in 6 months have a nominal rate of 5.5%. In the spot exchange market, 1 yen equals $0.009. If interest rate p
- Six-month T-bills have a nominal rate of 4%, while default-free Japanese bonds that mature in 6 months have a nominal rate of 2.5%. In the spot exchange market, 1 yen equals $0.0098. If interest rate
- The exchange rate is: A) the price of one currency relative to gold B) the value of a currency relative to inflation C) the change in the value of money over time D) the price of one currency relative to another
- A recent edition of The Wall Street Journal reported interest rates of 2.65 percent, 3.00 percent, 3.38 percent, and 3.65 percent for three-year, four-year, five-year, and six-year Treasury notes, res
- Suppose that the one-year interest rate is 4.0 percent in the Italy, the spot exchange rate is $1.60/euro, and the one-year forward exchange rate is $1.58/euro. What must one-year interest rate be in
- Suppose that the one-year interest rate is 5.0% in the United States, the spot exchange rate is $1.20/euro, and the one-year forward exchange rate is $1.16/euro. What must one-year interest rate be in
- The nominal yield on 6-month T-bills is 8%, while default-free Japanese bonds that mature in 6 months have a nominal rate of 3%. In the spot exchange market, 1 yen equals $0.009. If interest rate parity holds, what is the 6-month forward exchange rate?
- Suppose that you're an FX trader for a bank in New York. You are faced with the following market rates: Spot exchange rate: Yen 110.55/$. 1-year dollar interest rate = 1.50% 1-year yen interest rate = 0.25% 1-year forward exchange rate: = Yen 108.15/$
- A). Last year, a U.S. currency trader could buy 117.965 Japanese yen ( ) with one U.S. dollar ( 117.965/$), but today one Japanese yen buys $0.008816 ($0.008816/ ). Last year's exchange rate of 117.9
- The spot exchange rate in New York is 1.600 dollars per British pound. The 360-day forward exchange rate is 1 680 dollars per pound. The one-year interest rate in Great Britain is 2% while the one-year interest rate in the United States is 4%. If the inte
- The one-year interest rate in Japan is -0.20% (-0.0020). The one-year interest rate in the U.S. is 1.00% (0.01). a. What is the interest rate differential? b. For interest rate parity to hold, the dollar needs to decrease by the amount above. If the cur
- Currencies - U.S. dollar foreign-exchange rates. December 18. 2009. Country/Currency in US$.............. per US$ Chinese Yuan 0.1466..............6.8213 Indian Rupee 0.0201.............49.7512 Euro 1.3265..............................0.7539 A Big M
- You are a foreign exchange trader specialized in the US dollar Swiss franc market (USD/CHF). One morning, you notice that the one-year dollar interest rate is 4%, while the one-year interest rate on Swiss francs is 2.7%. Today's USD/CHF rate is $1.7. What
- Suppose that the current spot exchange rate is euro 1.50 / GBP and the one-year forward exchange rate is euro 1.60 / GBP. The one-year interest rate is 5.4% in euros and 5.2% in pounds. You can borrow
- A currency dealer has good credit and can borrow either $1,000,000 or 800,000 pounds for one year. The one-year interest rate in the U.S. is i_$ = 5% and in the euro zone the one-year interest rate is i_{pound} = 4%. The spot exchange rate is $1.25/pound
- Suppose the current exchange rate for the French franc is FF 7.47. The expected exchange rate in three years is FF 8.05. What is the difference in the annual inflation rates for the United States and
- Currency per U.S. Dollar Australia dollar 1.2378 6-months forward 1.2355 Japan Yen 100.3400 6-months forward 100.0400 U.K. Pound .6791 6-months forward .6782 Suppose interest rate parity holds, and th
- A U.S. Investor wants to invest $5,000 in China at a 6% interest rate. Today the exchange rate is 6.88 CNY/USD. Which currency depreciated?
- A currency dealer has good credit and can borrow either 1,000,000 euros or 750,000 pounds for two years. The 2-year euro interest rate is 5% and the 2-year pound interest rate is 6%. The spot exchange rate is 0.75 pounds/euro and the 2-year forward exchan
- Suppose that the current spot exchange rate is 1.50 euros/pound and the one-year forward exchange rate is 1.45 euros/pound. The one-year interest rate is 5.6% in euros and 4.9% in pounds. You can borr
- Suppose the current exchange rate, for the Russian ruble, is RUB 49.35. The expected exchange rate, in three years, is RUB 51.80. What is the difference in the annual inflation rates, for the United S
- We observe the following exchange rates: Bank A: Yuan 115.61/euro Bank B: $0.8908/euro Bank C: Yuan 129.87/$ Based on the quotations in Bank B and Bank C, what is the cross rate between Yuan and euro?
- At time t, company A borrows 128 million yen at an interest rate of 1.2% p.a., paid semiannually, for a period of 2 years. It then enters into a 2-year swap at an exchange rate of JPY/USD 128. The swa