Math Problem Statement
The spot GBP/USD exchange rate is 0.5051/USD, and the one-year forward rate is GBP 0.5165/USD. If the annual interest rate on dollar CDs is 6 percent, what would you expect the annual interest to be on GBP CDs?
Solution
Ask a new question for Free
By Image
Drop file here or Click Here to upload
Math Problem Analysis
Mathematical Concepts
Foreign Exchange Rates
Interest Rate Parity
Formulas
Forward Rate = Spot Rate * (1 + Interest Rate Domestic) / (1 + Interest Rate Foreign)
Interest Rate on GBP CDs = Forward Rate / Spot Rate - 1
Theorems
Interest Rate Parity Theorem
Suitable Grade Level
Grades 11-12
Related Recommendation
Calculate Nominal Interest Rates and Future Exchange Rates Using the Fisher Effect
Calculate Expected 2-Year Spot Interest Rate from Current Spot Rates
Calculating Rate of Return on Investment Using PPP and Exchange Rates
Calculating Expected One-Year Rate from Treasury Yield Curve
Expected One-Year Rate Calculation from Treasury Yield Curve