View the step-by-step solution to: Chapter 8 Problem 44 - Changes in the Forward Rate. Assume

Chapter 8 Problem 44 - Changes in the...
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Chapter 8 Problem 44 - Changes in the Forward Rate. Assume that interest rate parity exists and will continue to exist. As of this morning, the 1-month interest rate in the United States was higher than the 1-month interest rate in the Eurozone. Assume that as a result of the European Central Bank’s monetary policy this afternoon, the 1-month interest rate in the United States remained unchanged. Based on the information,

a. Do you think the 1-month forward rate of the euro exhibited a discount or premium this morning?

b. How did the forward premium changes this afternoon?
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