The direct exchange rate between Hogwarts galleons and dollars is $0.2500 dollars for a galleon. [or, in foreign exchange notation, GAL/USD = $0.2500]. The interest rate in Hogwarts is 9% per per year and the interest rate in the US is 2% per year. You would like to lock in the dollar value of a galleon cash flow to be received 17 years from now. Using the interest rate parity theorem, calculate the 17 year direct forward rate between galleons and dollars. Report your answer to 4 decimal places.

Dominic Woodward

Dominic Woodward

Answered question

2022-12-18

The direct exchange rate between Hogwarts galleons and dollars is $0.2500 dollars for a galleon. [or, in foreign exchange notation, GAL/USD = $0.2500].
The interest rate in Hogwarts is 9% per per year and the interest rate in the US is 2% per year. You would like to lock in the dollar value of a galleon cash flow to be received 17 years from now.
Using the interest rate parity theorem, calculate the 17 year direct forward rate between galleons and dollars. Report your answer to 4 decimal places.

Answer & Explanation

ng5stril2t

ng5stril2t

Beginner2022-12-19Added 2 answers

Forward rate = Spot rate ( 1 + dollar interest ) ( 1 + gal interest) number of years = 0.25 ( 1.09 1.02 ) 17 = 0.25 3.090634 = 0.7727

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