1030 others answered this question
Question 3b
Formulae & tables
PZK Co, whose home currency is the dollar, trades regularly with customers in a number of different countries. The company expects to receive €1,200,000 in six months’ time from a foreign customer. Current exchange rates in the home country of PZK Co are as follows:
Spot exchange rate: | 4·1780–4·2080 euros per $ |
Six-month forward exchange rate: | 4·2302–4·2606 euros per $ |
Twelve-month forward exchange rate: | 4·2825–4·3132 euros per $ |
Required:
(b) If the interest rate in the home country of PZK Co is 4% per year, calculate the annual interest rate in the foreign customer’s country implied by the spot exchange rate and the twelve-month forward exchange rate. (2 marks)