Use the information below to answer the followingquestions.U.K. Pound6-months forward (£)Japan Yen6-months forward ()Switzerland Franc6-months forward(SF)Currency per U.S. $0.51350.5204108.21106.961.04921.0478Suppose interest rate parity holds, and the current six-month risk-free rate in the UnitedStates is 4.6 percent.What must the six-month risk-free rate be in Great Britain?4

Risk-free rate refers to the rate at which the company is earning the returns without taking any…

Use the information below to answer the following questions. U.K. Pound 6-months forward (£) Japan Yen 6-months forward () Switzerland Franc 6-months forward (SF) Currency per U.S. $ 0.5135 0.5204 108.21 106.96 1.0492 1.0478

Use the information below to answer the following questions. U.K. Pound 6-months forward (£) Japan Yen 6-months forward () Switzerland Franc 6-months forward (SF) Currency per U.S. $ 0.5135 0.5204 108.21 106.96 1.0492 1.0478

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter7: International Arbitrage And Interest Rate Parity

Section: Chapter Questions

Problem 45QA

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Concept explainers

Instruments of Foreign Exchange Market

Foreign exchange is a worldwide market in which one nation’s currency is converted into another nation’s currency. In further terms, exchanging of nations currency with foreign currencies. Foreign exchange happens at a specified rate which is termed the foreign exchange rate. The exchange rates are not constant continuously changing as they are derived by market forces of supply and demand. Widely used foreign currencies are the United States- dollar, Euro, Japanese Yen, British pound, and Australian dollar. US- dollar is the most denominated foreign currency. The Euro to US dollar is a widely used currency pair in the forex market as these two currencies represent the world’s enormous economy. Forex trade is simple as exchanging currencies at the bank. The main players of forex markets are the central banks, financial institutions, intermediaries, investments banks, and other banks. Central Bank is the supreme player who decides the currency value of their own nation on the forex market. Mostly foreign exchange-traded at FX market (forex market) when tourists’ visits a foreign country, import, and export happens between two countries.

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