Assume the current U.S. dollar-yen spot rate is ¥90/$. Further, the current nominal 180-day rate of return in Japan is 1% and 2% in the United States. What is the approximate forward exchange rate for 180 days?

Question

Quizplus · Accepted Answer

Using the formula: 
Forward rate = Spot rate × [(1+domestic rate)/(1+foreign rate)]^(time period/360)
We get, 
Forward rate = ¥90/$ × [(1+0.02)/(1+0.01)]^(180/360)
Forward rate = ¥90/$ × 0.994974
Forward rate = ¥ 89.55/$
Therefore, the approximate forward exchange rate for 180 days is ¥89.55/$. Option B is the correct answer.

Assume the Current U