What is the implied forward rate

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Reference no: EM131873117

The formula for interest parity is: i_$ - i_fc = (F-E)/E Or that the interest rate differential between two countries is equal to the foreign exchange premium or discount. We want to explore how this relationship can be used to exploit arbitrage opportunities?

Before exploring this question in more detail, please tackle the following problem: Say

i_US = 15%

i_UK = 10%

The current spot rate is $2/L

What is the implied forward rate?

What if the value is different than this?

Reference no: EM131873117

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