Suppose the US interest rate is 3% per annum. The Rs-$ exchange rate in spot market is 80 and in 3-month forward market is 81. What is the per annum return on US bond in rupee terms?
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4 marks, −1International EconomicsBalance of payments and exchange ratesInterest parity: covered and uncoveredHardabout 2 min
CUET-PG 2023 Shift 2 Question 46: Balance of payments and exchange rates
Answer and worked solution
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Balance of payments and exchange rates has come up 120 times in 7 exams since 2007.
What this question tests
This question is on Interest parity: covered and uncovered, part of Balance of payments and exchange rates in International Economics.
How interest differentials and expectations tie exchange rates to interest rates.
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Question from the CUET-PG 2023 Shift 2 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.