The spot rate on the Hong Kong dollar is 7.84.Interest rates in Hong Kong are expected to be 2.75 percent while they are anticipated to be 2.5 percent in the U.S.What is the expected exchange rate two years from now?

Question

Quizplus · Accepted Answer

To calculate the expected exchange rate after two years, we need to use the formula: 
Expected Exchange Rate = Spot Rate x (1 + Interest Rate in Country A) / (1 + Interest Rate in Country B)
Plugging in the given values, we get:
Expected Exchange Rate = 7.84 x (1 + 0.0275) / (1 + 0.025) = 7.8792
Therefore, the expected exchange rate two years from now is HK$7.8792, which corresponds to choice C.

The Spot Rate on the Hong Kong Dollar Is 7