International Fischer Effect Sums
(1) USD EUR 0.7000 Spot
Interest Rates Europe 6%
US of A 5%
Calculate 6 month Forward Rate.
(Ans.: USD EUR 0.7034)
(2) CHF CAD 0.8500 Spot
Interest rates Canada 3%
Swiss 4%
(i) Calculate 73 days forward Rate
(ii) Calculate Forward premium/discount annualized.
(iii) Write your observation.
(iv) Which currency is at Premium?
(Ans.: USD EUR 0.8483
Fwd Discount 1%
Fwd Discount is approx equal to interest rate difference i.e. 4 – 3 = 1%
CAD is at Premium)
(3) GBP USD 1.6700 Spot
GBP USD 1.6867 6 months
Interest rates Brit 4.00%
Find interest Rate in US of A per annum to avoid arbitrage.
(Ans.: 6.04%)
(4) EUR USD 1.3000 Spot
EUR USD 1.3224 6 months
Interest rates US of A 6.00%
Find interest Rate in Europe per annum to avoid arbitrage.
(Ans.: 2.51%)
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