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Changes in the Forward Rate Assume that interest r...

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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 of the euro increased, and is now higher than the U. S. 1- month interest rate. 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?

 

Paper#11845 | Written in 18-Jul-2015

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