Exchange rate between dollar and german mark

Reference no: EM1345970

The spot exchange between U.S. dollar and German mark is $.5500/DM. The dollar deposit rate is 8% and DM deposit rate is 4%.

a. What is the interest parity? what is the six month forward rate if the covered interest parity holds?

b. What is the unbiased forward rate hypothesis? If the unbiased forward rate hypothesis holds, what do you expect the spot rate between the U.S. dollar and the German mark to be in six months

Reference no: EM1345970

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