What does the interest rate parity condition indicate

Assignment Help Financial Management

Reference no: EM131305166

Suppose that the current exchange rate is 1.50 = £1, but it is expected to be 1.35 = £1 in one year.

If the current interest rate on a one year government bond in the United Kingdom is 4%, what does the interest-rate parity condition indicate the interest rate will be on a one-year government bond in Germany?

Assume that there are no differences in risk, liquidity, taxation, or information costs between the bonds.

Reference no: EM131305166

Questions Cloud

Discuss possible strategies counselors : What are some of the continued issues that this population faces in society? In your post, include strategies for counselors to take if biases and assumptions exist that could negatively impact the counseling process.

An article in the new york times claims : An article in the New York Times claims, "In a global market, the main reason one currency offers a higher interest rate than another is that it is compensating the holder for exchange rate risk."

Draw the two points of intersection in red : Circle Intersection. Write a program that computes the intersection of a circle with a horizontal line and displays the information textually and graphically.

Exchange rate between yen and the dollar to be in one year : According to the interest-rate parity condition, what do investors expect the exchange rate between the yen and the dollar to be in one year?

What does the interest rate parity condition indicate : What does the interest-rate parity condition indicate the interest rate will be on a one-year government bond in Germany?

An article in wall street journal describes the carry trade : An article in the Wall Street Journal describes the "carry trade": "which involves borrowing money in countries such as Japan where interest rates are low, then investing it where rates are higher and pocketing the difference."

What are u s dollar short term funding markets in europe : What are "U.S. dollar short-term funding markets in Europe"?- How do dollar liquidity swap lines ease strains in these markets?

Fed and european central bank enter into an agreement : "The Federal Reserve announced that it would open currency swap lines-in essence, printing dollars and exchanging them for euros." Why would the Fed and the European Central Bank enter into such an agreement?

What are some of the continued issues relate to society : Describe challenges LGBT individuals may encounter in a career setting and discuss possible strategies counselors can use to work with and advocate for these clients. What are some of the continued issues that this population faces in society? In ..

User Account

All Pages