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The 1-year interest rate in New Zealand and Australia are 2.5% and 5.5%, respectively. The spot...

The 1-year interest rate in New Zealand and Australia are 2.5% and 5.5%, respectively. The spot exchange rate is 1.35NZD/AUD. If AUD is your local currency, what is the 1-year forward exchange rate (expressed in AUD/NZD)?

Solutions

Expert Solution

Given information

1) home currency ( local currency) = AUD

2) foreign currency = NZD

3) Spot exchange rate = 1.35 NZD/AUD

4) home currency interest rate (AUD)= 5.5%

5) Foreign currency interest rate (NZD)= 2.5%

given spot rate is indirect quote ..So we shall convert such indirect quote into direct quote ..

There are two alternative methods ..

jeff jeffy answered 1 year ago
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