Purchasing Power Parity

International Finance Arbitrage & Purchasing Power Parity Question 1. castigate SPOT FORWARD AGAINST THE POUND December 11 |COUNTRY |Spot | promise/Ask |1-Year Forward | |Switzerland (SFr) |1.9816 |805-827 |1.9734 | |Singapore (S$) |2.7348 |335-360 |? | Assume interest identify parity holds. Q1, a) Is the SFr at a premium or terminate? What does this tell you about interest casts in Switzerland in comparison to the UK if interest rate parity holds? Answer 1. bastinado Spot Forward Against The Pound A1, a) Spot regularize = 1.9816 SFr/£ Forward Rate =1.9734 SFr/£ SFr is at premium as the forward rate is slight than the spot rate. It shows that interest rate in Switzerland is currently blue in relationship to the UK if interest rate parity holds. Q1, b) The mid(prenominal) one year interest rate is 2% and 1 3/16 for the UK and the Singapore respectively. What is the 1-year forward for the S$? A1, b). delight rate in UK 2% saki rate in Singapore 1.

187% Spot = 2.7348 S$ Forward rate for a year in S$ [pic] [pic] = 2.7130 Q1, c) Estimate the 1-year interest rate in Switzerland? A1, c). Forward rate = 1.9734 Spot Rate = 1.9816 Interest rate in UK = 2% [pic] [pic] [pic] [pic] Q1, d) Briefly discuss the advantages and disadvantages of using forward contracts to hedge transaction exposure. A1, d).... If you want to get a full essay, order it on our website: Ordercustompaper.com

If you want to get a full essay, wisit our page: write my paper