Using the covered interest parity condition,the calculated three-year forward rate F₃is closest to:

Question

Quizplus · Accepted Answer

Using the covered interest parity condition: (1 + rCAD)/(1 + rGBP) = F_3/ Assuming the interest rate for CAD is 2.5% and the interest rate for GBP is 1.5%, we can calculate the forward exchange rate as follows: (1 + 0.025)/(1 + 0.015) = F_3/ F_3/ = 1.010309 Therefore, the three-year forward rate of CAD/GBP is approximately 1.9161 (rounded to four decimal places). The closest answer choice to this calculated rate is B, 1.9161 CAD/GBP.

Using the Covered Interest Parity Condition,the Calculated Three-Year Forward Rate