PRIN.OF CORPORATE FINANCE
PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 27, Problem 6PS
Summary Introduction

To discuss: 3-month interest rate on Country B real and the effects if the rate is substantially above the arrived value.

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Suppose the spot rate and the 90-day forward rate on the Brazilian real are 3.3054 and 3.3263, respectively.   If the three-month interest rate on dollars is .27%, what do you think is the three-month interest rate on the Brazilian real? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Suppose the spot rate for the Canadian dollar is CAD1.034 = USD1, the 3-month forward rate is CAD1.036 = USD1, and the 1-year forward rate is CADS1.039. = USD1. If no other information is available, what will be your guess about the spot rate in 1 year?
If the 60-day interest rates (simple, p.a.) are 3% at home (usd) and 4% abroad (eur) and the spot rate moves from 1.000 to 1.001: What is the return differential, and what is the corresponding prediction of the change in the forward rate?
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