If the US dollar interest rate is 4% and the peso interest rate is 7%, what is the likely 1 year forward rate if the spot dollar - peso rate is 11?

Question

Quizplus · Accepted Answer

The formula for calculating the forward rate is as follows:

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

Plugging in the given values:

Forward rate = 11 x (1 + 0.07 / 1 + 0.04) = 11.32

Therefore, the likely 1 year forward rate is 11.32.

If the US Dollar Interest Rate Is 4% and the Peso