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Student’s Name Professor’s Name Subject DD Month YYYY INTERNATIONAL FINANCE Q1a. Covered Interest Rate Parity In question one the Covered Interest Rate Parity can be described as a theoretical predicament in which the interest rates spot rate as well as the forward currency exchanges are in equilibrium. When calculating the CIRP the interest rate arbitrage between the currencies of two nations is however not present. In the case of Question One the necessity of calculating the three-month interest rate is to provide for coverage for the arbitrage that is not covered in the CIRP. Since both currencies will be trading at par one USD will have the same purchasing power as one GBP hence the calculation of the forward price important to compare the two countries. The forward rate of converting the USD into GBP. Since the interest rates in UK is lower than that of the US it returns on another country’s deposits with whom trading is taking place. Also it depends on the mobility on a country’s capital whereby investors can readily exchange domestic assets for foreign assets. Arbitrage is the simultaneous purchase and sale of an asset to profit from a difference in the price of the commodity. A trade that profits by exploiting the price differences of identical financial instruments on different markets as a result of marketing efficiencies. 4c. Based on my findings I therefore deduce that an arbitrage would be possible according to the table I have presented above there is a limited amount of information that supports the Uncovered Interest Rate Parity but it is still used as a theoretical device to represent rational expectation. The assumption of an efficient capital market under the price of a forward contract at any given time would make the Uncovered Interest Rate Parity valid. [...]
Order Description:
need to be finished in 24 hours international finance ， CIRP， UIRP， Exchange rate calculation
Subject Area: Finance
Document Type: Dissertation Proposal
