Top 4 International Fischer Effect Questions You Need To Solve


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 INTERNATIONAL FISCHER EFFECT:

 

(1)   USD EUR             0.7000             Spot

Interest Rates        Europe             6%

US of A          5%

Calculate 6 month Forward Rate.

(Ans.: USD           EUR          0.7034)

 

(2)   CHF CAD                        0.8500             Spot

Interest rates         Canada                        3%

Swiss                     4%

(i)     Calculate 73 days forward Rate

(ii)   Calculate Forward premium/discount annualized.

(iii) Write your observation.

(iv) Which currency is at Premium?

(Ans.: USD           EUR          0.8483

Fwd Discount                              1%

Fwd Discount is approx equal to interest rate difference i.e. 4 – 3 = 1%

CAD is at Premium)

 

(3)   GBP USD             1.6700             Spot

GBP USD             1.6867             6 months

Interest rates         Brit                  4.00%

Find interest Rate in US of A per annum to avoid arbitrage.

(Ans.: 6.04%)

 

(4)   EUR USD             1.3000             Spot

EUR USD             1.3224             6 months

Interest rates         US of A          6.00%

Find interest Rate in Europe per annum to avoid arbitrage.

(Ans.: 2.51%)

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We, at BMS.co.in, believe in sharing knowledge and giving quality information to our BMS students. We are here to provide and update you with every details required by you BMSites! If you want to join us, please mail to [email protected]

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