Suppose interest rate parity holds, and the current risk-free rate in the United
ID: 2717350 • Letter: S
Question
Suppose interest rate parity holds, and the current risk-free rate in the United States is 3 percent per six months.
What must the six-month risk-free rate be in Australia? (Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)
What must the six-month risk-free rate be in Japan? (Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)
What must the six-month risk-free rate be in Great Britain? (Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)
Use the information below to answer the following questions. (Enter your answer as directed, but do not round intermediate calculations.)Explanation / Answer
2.33%
1)six-month risk-free rate be in Australia forward rate=spot rate(1+interest rate Fc)/(1+interest rate$)t 1.2344=1.2389(1+interest rate FC)/(1+.03).5 squaring on both the sides 1.5237=1.2389(1+interest rate FC)/(1+.03) 1.5694=1.2389(1+interest rate FC) 1.2668=(1+interest rate FC) interest rate FC=1.2668-1 interest rate FC= 0.2668*100 26.68%