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there is interest rate parity formula in BPP Book (page 330)
F= S X (1+ic)/(1+ib)
what value come in ic and ib place? “i” refer to interest rate and C and B refer to country C and B
I think you’ve answered your own question! IC is the interest rate of the country C do if the interest rate in C was 5% and the interest rate in B was 6% then it would be F=Sx(1+.05)/(1+0.06). You wont actually know what to put in as the interest rates unless it tells you in the exam! I hope I’ve answered your question.
i think u can apply this
F= S(c/b)x(1+ic)/(1+ib)
For example BPP page 331
F=S($/Dinar)x(1+i$)/(1+iDinar)= 5.467X1.14/1.09= 5.7178 ($/D)
OR
F=S(Dinar/$)x (1+iDinar)/(1+i$)=1/5.467×1.09/1.14=0.174893 (D/$) <=> 5.7178 $/DinarIf the currency is stated as $/£ 1.5 which means that the £ is the base currency,
the easiest way is to put first the first currency ($) and secondly the second (£) which is the base currency so remember b for base.
Hope this helpsAmarain
Pls tell me how to identify the country corresponding to the interst rate (iC, iB)? Ths in advance!
Hi Nice,
If you are in the UK, b is UK (b satnd for base cuntry) and the C is for the foreign country. So if you are and Indian and we rae in India and you do business with Chine, India will be b and China C
If we are in the UK doing business with Spain, UK would be b and Spain cAmarain
please once again confirm me, C stand for home country and B stand for foreign country?
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HI THERE, HOW ABOUT THE FISHER FORMULA FOR THE FOREX RATES
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