Asked by London Aldridge on Jul 10, 2024
Verified
The present exchange rate is 1 Nigerian Niara (NGN) = U.S. $0.002896. The 1-year future rate is NGN = U.S. $0.002774. The yield on a 1-year U.S. bill is 3.2%. A yield of ________ on a 1-year Nigerian bill will make an investor indifferent between investing in the U.S. bill and the Nigerian bill (NTB) .
A) 2.94%
B) 1.73%
C) 6.04%
D) 7.74%
E) None of the options are correct
Future Rate
An expected rate for a financial instrument or an economic variable at a specified future date.
- Acquire knowledge on the risks posed by exchange rate variability and the strategies for hedging against them.
Verified Answer
GN
GLORIA NAA ODOFELEY TAWIAHJul 11, 2024
Final Answer :
D
Explanation :
1.032 = [($0.002774/$0.002896)(1 + r)] − 1; r = 7.74%
Learning Objectives
- Acquire knowledge on the risks posed by exchange rate variability and the strategies for hedging against them.