Answer-first summary for fast verification
Answer: EUR/CHF 1.24
For discrete-compounding interest rate parity: \[ F = S \times \frac{(1+r_{CHF})}{(1+r_{EUR})} \] Given: - \(S = 1.20\) - \(r_{CHF} = 5.0\%\) - \(r_{EUR} = 2.0\%\) \[ F = 1.20 \times \frac{1.05}{1.02} \approx 1.2353 \] Rounded, the 12-month forward rate is **EUR/CHF 1.24**, so the correct answer is **C**.
Author: Manit Arora
Ultimate access to all questions.
Question 1.4. The spot exchange rate EUR/CHF is CHF 1.20. Interest rates are flat at 2.0% in the Eurozone (EUR) and 5.0% in Switzerland (CHF). According to interest rate parity (IRP), what should be the 12-month EUR/CHF forward exchange rate if we assume annual (discrete) compounding?
A
EUR/CHF 1.14
B
EUR/CHF 1.20
C
EUR/CHF 1.24
D
EUR/CHF 1.28
No comments yet.