Can anyone support with this please;
- Kaplan - Question ID: 1472270
Given the following information, what is the forward exchange rate implied by interest rate parity?
U.S. interest rate = 9%.
North Korea interest rate = 10%.
Spot rate = 1.65 KPW/$.
Answer;
Forward rate (DC/FC) = Spot Rate (DC/FC) × [(1 + domestic rate) / (1 + foreign rate)],
Forward rate = 1 / 1.65 (KPW/) × (1.09 / 1.10) = 0.60055 /KPW, or 1.665 KPW/$.
- Kaplan - Question ID: 1472259
One-year interest rates are 7.5% in the U.S. and 6.0% in New Zealand. The current spot exchange rate is USD/NZD 0.5500. If uncovered interest rate parity holds, the expected spot rate in one year must be closest to:
Answer;
USD interest rate is 1.5% higher hence, NZD will appreciate by 1.5% under the uncovered interest rate parity.
Expected Spot = 0.5500 × (1.015) = USD/NZD 0.55825
** my questions is; why in question one we calculated difference between the two interest rates as (1+Rd) / (1+Rf), while in the second question we calculated the difference simply by subtracting Rd - Rf?**