andUncoveredInterestRateParity(国际金融香港.pptxVIP

Covered and Uncovered Interest Rate ParityWONG Ka Fu26th January 2000Comparing Local and Foreign PricesPrices within a countryPrices across countriesP (in home currency)P* (in foreign currency)1 HD = x FD = 1/e FD, i.e., e HD = 1 FDP vs. eP*Return on home assetTime Buy Asset: pay PttFor example, t=January,t+1=FebruaryMay receive dividend Dt+1between time t and time t+1Sell asset: get Pt+1t+1Return = Pt+1+Dt+1 -PtRate of Return = (Pt+1+Dt+1 - Pt)/PtReturn on a home assetPt+1 - Ptdividends or any interest payments to the asset holder ? Dt+1 Pt+1 - Pt + Dt+1Rate of Return on a home assetReturn