Interest rates on the U.S.dollar are 5.4% and euro rates are 4.6%.Given a dollar per euro spot rate of 0.918,what is the 6-month forward rate ($/E)?

Question

Quizplus · Accepted Answer

The formula for calculating the forward rate is:

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

In this case, we want to find the 6-month forward rate, so we need to divide the interest rates by 2 and express the time in years as 0.5:

Forward Rate = 0.918 x (1 + 0.054 / 1 + 0.046) ^ 0.5 
Forward Rate = 0.918 x (1.02707) ^ 0.5 
Forward Rate = 0.922

Therefore, the answer is choice C (0.922).

Interest Rates on the U