If the spot rate S/£ is $1.3050 and the US interest rate is 3% and the...

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

Solutions

Expert Solution

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/£

jeff jeffy answered 2 years ago

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