If the spot rate between the U.S. dollar and the New Zealand dollar is $1 = NZD1.5215, and if the interest rate in the United States is 8 percent and in New Zealand is 4 percent, then what should be the three-month forward exchange rate?

Question

Quizplus · Accepted Answer

The correct answer is A because the forward rate should be $0.6637. The forward rate is calculated using the following formula:F = S * (1 + i_domestic / 100) / (1 + i_foreign / 100)where:F is the forward rateS is the spot ratei_domestic is the domestic interest ratei_foreign is the foreign interest rateIn this case, the spot rate is $1 = NZD1.5215, the domestic interest rate is 8%, and the foreign interest rate is 4%. Plugging these values into the formula, we get:F = 1.5215 * (1 + 0.08 / 100) / (1 + 0.04 / 100)= 1.5215 * 1.08 / 1.04= 1.5215 * 1.0385= $0.6637

If the Spot Rate Between the U