Use the information below to answer the following questions. Currency per U. S. $ Australia dollar 1.2376 6-months forward 1.2357 Japan Yen 100.3200 6-months forward 100.0600 U. K. Pound .6793 6-months forward .6780 Suppose interest rate parity holds, and the current six month risk-free rate in the United States is 3 percent. Use the approximate interest rate parity equation to answer the following questions. a. What must the six-month risk-free rate be in Australia

A. 3.00%

B. 2.99%

C. 2.99%

Explanation:

A. Calculation to determine What must the six-month risk-free rate be in Australia

As per Interest Rate Parity:-

Forward Rate/Spot Rate = Interest in Australia/ Interest In USA

1.2357/1.2376=Interest in Australia/0.03

Hence,

Interest in Australia=1.2357*0.03/1.2376

Interest in Australia= 2.995%

Interest in Australia=3.00%

Therefore What must the six-month risk-free rate be in Australia is 3.00%

B. Calculation to determine What must the six-month risk-free rate be in Japan

Forward Rate/Spot Rate = Interest in Japan/ Interest In USA

100.0600/ 100.3200 =Interest in Japan/0.03

Hence,

Interest in Japan =100.0600 *0.03/ 100.3200

Interest in Japan= 2.99%

Therefore What must the six-month risk-free rate be in Japan is 2.99%

3. Calculation to determine What must the six-month risk-free rate be in Great Britain

Forward Rate/Spot Rate = Interest in Great Britain/ Interest In USA

.6780 /.6793=Interest in Great Britain/0.03

Hence,

Interest in Great Britain= .6780*0.03/0.6793

Interest in Great Britain=2.99%

Therefore What must the six-month risk-free rate be in Great Britain is 2.99%

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the correct answer is economics is a game without winners or losers.

unlike sports or games economic is a game without losers or winner rather it is a game where everyone wins. parties of business doing businesses exchange money with each other and hence exchange is done on the basis of goods. one party takes the goods and other sales it so there is winner on both sides. each party values more highly the good it gets than the good it gives up. both sides exchange only because both intend to increase their value. so there is no concept of lose or win.