# HW11-18 - 6-month T-bills nominal rate of default free...

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6-month T-bills 7% nominal rate of default free 6-month Japanese bonds 5.50% spot exchange rate: 1 Japanese Yen = \$0.009 Solve for the 6-month forward exchange rate: Ft = ??? (forward exchange rate/spot exchange rate) = (1+ host rate)/(1+ foreign rate) foreign rate = 2.75% host rate = 3.50% Cross multiply: Ft = 1.0350 \$0.009 1.0275 (Ft)(1.0275) = 0.0093150 Ft = 0.0090657 which rounds to \$ 0.00907

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Kouros Vala BUS 173A Vuorikoski-Bullis 11/16/2009
US T.V. \$500.00 French T.V. 550 (euros) Solve for the Spot rate between euro and dollar: price host = (Pf)(E0) Exchange rate: E0 = \$0.909091 Spot Exchange rate: 1 euro = \$0.909091 (inverse): \$1.00 = 1.1000 Euros

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nominal rate of a 90-day US risk-free security 5% rate of a 90-day German risk-free securities 5.30% Spot exchange rate: 1 euro = \$ 0.80 A.) rate host = 1.250% rate foreign= 1.325% Exchange rate: e0 = \$0.80 (Ft/\$0.80) = 1 Ft= \$0.79772 The forward rate is selling at a discount, because a euro buys fewer dollars in the forwar B.) The 90-day forward rate is \$0.79772
rd market than it does in the spot.

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System of Four Parity Conditions Inputs \$1.3640 13 US Riskfree Rate (Annual) 4.47% 4 US Inflation Rate 2.69% 2 Outputs 4 (4) International Fisher Effect
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