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Given the following FX quotes between Paris and New York: Assumptions Paris New York Spot Rate...

Given the following FX quotes between Paris and New York:

Assumptions

Paris

New York

Spot Rate ($/€)

1.356

1.356

1-yr T-Bill rate

3.6%

4.5%

Expected Inflation rate

Unknown

1.30%

The expected 1-year forward exchange rate ($/€) today should be:

Hint: Refer International Fisher Effect

Select one:

a. 1.456

b. 1.256

c. 1.368

d. 1.305

e. None of the Above

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Answer #1

Assumptions Spot Rate (S/E) 1-yr T-Bill rate Expected Inflation rate Paris New York 1.356 3.60% 1.356 4.50% 1.30% 4 Unknown As pet IFE forward rate 1.368 3 10Assumptions Spot Rate (S/) 1-yr T-Bill rate Expected Inflation rate Paris 1.356 0.036 Unknown New York 1.356 0.045 0.013 4 7

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