The spot exchange rate for the Thai bhat is 33.135 bhat to the dollar or .00318 dollar to the bhat.For capital budgeting purposes,Ramo Corp needs to estimate the exchange rate 5 years from now.The U.S.interest rate is 4%;the interest rate in Thailand is 8%.The estimated 5 year forward rate is:

Question

Quizplus · Accepted Answer

To calculate the forward rate, we can use the following formula:

Forward Rate = Spot Rate * (1 + Foreign Interest Rate) / (1 + Domestic Interest Rate) ^ Time

Plugging in the numbers given in the problem, we get:

Forward Rate = 33.135 * (1 + 0.08) / (1 + 0.04) ^ 5
Forward Rate = 33.135 * 1.469328 / 1.21665
Forward Rate = 40.022

Therefore, the estimated 5 year forward rate for the Thai bhat is 40.022 bhat to the dollar, and the best choice is B.

The Spot Exchange Rate for the Thai Bhat Is 33