# Interest rate parity

**sompon123**

2. As the money manager of Boston Bank you have $1,000,000 available for six months. You have the opportunity to lend the fund in U.S. or lend the fund to prospective customers in Montreal or Landon.
Use the following information to answer this problem: (45Points)
- Present spot rate: $1.7120/£
$0.8861/C$
- Six month forward rate: $1.6726/£
$0.8742/C$
- Interest rate in U.S. is 8.00% annual
- Interest rate in U.K. is 10.5%
- Interest rate in Canada is 9.5%
a. Are interest rates and forward rates in equilibrium? Why or why not? Show your work.
b. Where should you invest for maximum yield?
c. What forward rate would create an equilibrium situation associated with investing in U.S. or Canada?
d. Would your decision about where to invest change if the U.K. interest rate was 15%?
e. If there is an arbitrage opportunity, for a transaction size of U.S. $1,000,000, (or £1,000,000) that you can borrow, how can you take advantage of the situation without taking undue risks? Show your work and profit or losses.

- 9 years ago
- 20

**Answer(1)**

Purchase the answer to view it

NOT RATED

- interest_rate_parity.xlsx

**Bids(0)**

**other Questions(10)**

- how did great britain dominated certain area of africa
- PART A (20 marks)Answer each question in this part.Find quotations (don't forget to give the page number) in the...
- 14h-5=10h+5
- Acc211 Fundamental Accounting Principal MacGraw Hill Connect Homework 8
- rank the following compounds in order of increasing percentage of nitrogen: KNO3 Mg9(NO3)2 (NH4)3PO4
- http://mjksciteachingideas.com/pdf/MappingLower.pdf
- Kevin paid $8.21 for 6 gallons of gas. How much did one gallon of gas cost (rounded to the nearest...
- review the book H. G. Wells’s ‘The War of the Worlds’
- where the comma suppose to be in this sentence: Scottie Pippen overcame back pain a foot injury and contract disputes...
- If this true or false?