In: Finance
If the spot rate S/£ is $1.3050 and the US interest rate is 3% and the UK interest rate is 4%, then one year equilibrium forward rate is
Spot Price: $1.3050/£
US Risk-Free Rate of Interest (r): 3%
UK Risk-Free Rate of Interest (rf): 4%
Determine 12 months forward rate:-
Fo = 1.3050*(e^((0.03 - 0.04)*1))
= $1.2920/£