The spot exchange rate for the Thai bhat is 30.000 bhat to the dollar or .00333 dollar to the bhat.For capital-budgeting purposes, Ramo Corp needs to estimate the exchange rate five years from now.The US interest rate is 2%; the interest rate in Thailand is 6%.The estimated five-year forward rate is

Question

Quizplus · Accepted Answer

To calculate the estimated five-year forward rate using the interest rate parity formula:

Forward Rate = Spot Rate x (1 + foreign interest rate) / (1 + domestic interest rate) ^ time

where time = 5 years

Forward Rate = 30.000 x (1 + 0.06) / (1 + 0.02) ^ 5
Forward Rate = 30.000 x 1.3382 / 1.10462
Forward Rate = 36.363 bhat to the dollar

Therefore, the answer is B.

The Spot Exchange Rate for the Thai Bhat Is 30