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2 January, 22:56

The interest rate parity approximation formula is: Multiple Choice

Ft = S0 (1 - RFC/RUS) t.

Ft = S0[1 + RFC (RUS) ]t.

Ft = S0[1 + (RFC + RUS) ]t.

Ft = S0[1 + (RFC - RUS) ]t.

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Answers (1)
  1. 3 January, 00:36
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    Answer: Ft = S0 [1 + (RFC - RUS) ]t.

    Explanation: Interest rate parity eliminates covered interest arbitrage opportunities. As a no-arbitrage condition, it represents an equilibrium state under which investors are indifferent to interest rates available on bank deposits in two countries (that hedged returns from investing in different currencies should be the same, irrespective of their interest rates). It is particularly useful in foreign exchange markets, connecting interest rates, spot exchange rates and foreign exchange rates.

    The formula for approximating the interest rate parity is given as Ft = S0 [1 + (RFC - RUS) ]t.
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Home » Business » The interest rate parity approximation formula is: Multiple Choice Ft = S0 (1 - RFC/RUS) t. Ft = S0[1 + RFC (RUS) ]t. Ft = S0[1 + (RFC + RUS) ]t. Ft = S0[1 + (RFC - RUS) ]t.
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