Question

You are a trader (arbitrageur) at platypus capital (a hedge fund). you are given the following information. the spot exchange rate today for the number of norwegian krona (nok) per euro (eur) is 4.80 nok = 1 eur. the annualised norwegian libor interest-rate (for the three month period starting today) is 4%. the annualised euro libor interest-rate (for the three month period starting today) is 8%. assume three months is exactly 0.25 years. q 4: what is the three month forward rate for the norwegian krona (nok) per euro (eur). . give your answer correct to four decimal places.

Answer 1

The three-month forward rate for Norwegian krona per euro is calculated using the formula that includes the spot rate and the annualized interest rates for both currencies, resulting in a forward rate of 4.7433 NOK per EUR.

Step-by-step explanation:

The three-month forward rate for the Norwegian krona (NOK) per euro (EUR) can be calculated using the interest rate differential between the two currencies. According to interest rate parity, the formula to calculate the forward rate (F) is:

F = S × (1 + idomestic)t / (1 + iforeign)t

Where:

• S is the spot exchange rate (4.80 NOK/EUR)
• idomestic is the domestic (Norwegian) interest rate (4% annualized)
• iforeign is the foreign (Eurozone) interest rate (8% annualized)
• t is the time in years (0.25 years for a three-month period)

Plugging in the values, we get:

F = 4.80 × (1 + 0.04)0.25 / (1 + 0.08)0.25

After calculating the above, the three-month forward rate for NOK/EUR is 4.7433, correct to four decimal places.