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

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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

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We 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...

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Interest Rate Parity, Forward Rates & International Fisher Effect

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


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