Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Currency Market
The currency market, also known as the foreign exchange market, consists of currencies worldwide. This market determines the rate of all currencies based on the buying and selling of forex. It is an over-the-counter market. It is the largest and most liq…
Question

Calculate a currency's foward premium or discount based on interest rate differentials.

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Step 1

Using Interest rate parity theory, forward rate are calculated as follows by assuming the two country currency value and interest rate.

 

  Currency Interest Spot rate
Local Currency CAN$ 6% 1.27
Foreign Currency USD$ 10% 1$
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