Assume that the forward rate is used to forecast the spot rate. The forward rate of the Canadian dollar contains a 6 percent discount. Today's spot rate of the Canadian dollar is $.80. The spot rate forecasted for one year ahead is:
A)$.860.
B)$.848.
C)$.740.
D)$.752.

Question

Quizplus · Accepted Answer

A 6 percent discount on the forward rate implies that the forward rate is 6 percent less than the current spot rate. Therefore, the forecasted spot rate is $.80 * (1 - 0.06) = $.752.

Assume That the Forward Rate Is Used to Forecast the Spot