Discuss the concept of forward interest parity. Using the discussion in the chapter, please discuss the principal factor which determines forward rates. (Hint: what do “efficient” markets try to prevent on the part of so-called investors.?). In answering these questions, please provide your explanation in terms of the formula(s) for interest rate parity.
Please examine the first section in the chapter on interest parity. Please examine some recent (in the last one week to one month) spot and forward rates between the dollar and a major currency. Also examine the related interest rates. Do the relations between exchange rates (forward discounts and premiums) and interest rates discussed in the chapter hold? With your answer, please provide copies of your sources. Some calculation may also help. (Suggestion: For forward rates, consult a print newspaper, such as the Wall Street Journal).