asked 171k views
3 votes
What is the forward premium on euros (the forward discount on USD)? What is the difference between the interest rate on one-year USD deposits and that on one-year euro deposits (assuming no repayment risk)?

asked
User Hendeca
by
8.6k points

1 Answer

3 votes

Answer:

Step-by-step explanation:

In calculating the Interest parity condition is given as R$= R€+ (Ee$/€- E$/€)/E$/€where R$and R€ are the current interest rates on one-year dollar and euro deposits respectively, E$/€ is the spot exchange rate, and Ee$/€ is the one-year forward exchange rate. The interest rate difference between one-year dollar deposits and one-year euro deposits will be know when there is a difference between the dollar and euro because the interest difference must be equal to the forward premium on euro against dollars when covered interest parity holds.

answered
User Pedrostanaka
by
7.1k points
Welcome to Qamnty — a place to ask, share, and grow together. Join our community and get real answers from real people.