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A company from Northland is expecting to receive Southland Krone in one year’s time. The spot rate is Northland dollar 3.4670 per 1 Krone. The company could borrow in Krone at 8% or in Northland dollars at 13%. There is no forward rate for one year’s time. What would interest rate parity predict the exchange rate to be in one year?
The answer treated Northland rate as the overseas country (numerator) and Krone rate as the base country (denominator). Is this correct?
The coy is in Northland expecting Krone (overseas currency).. Shouldn’t the Krone be the numerator and Northland rate the base (home country) the denominator?
It depends on how the exchange rate is quoted, not on where the money so coming from or going to.
Since the quote is the Northland dollar to 1 Krone, Northland is the numerator and Krone is the denominator.
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