Assume that the current dollar-euro exchange rate is 105, Ask an Expert

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Assume that the current dollar-euro exchange rate is 1.05 and Eurozone interest rates on deposits are 4% while they are 2% in the U.S. You are a US resident looking to invest for some money for a year and can do so either in the US or in the Eurozone. You are risk averse so you want to purchase a forward contract to cover your risk if you invest in the Eurozone. If CIP holds, what is the dollar-euro exchange rate offered that will be offered by the one year Forward contract? What does CIP holding mean?

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Financial Management, Finance

Category:- Financial Management
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