The current indirect exchange rate is €0.8511/$.The anticipated annual inflation rate is 2% in the United States and 3% in the Euro zone.What is the forward exchange rate?

Question

Quizplus · Accepted Answer

To calculate the forward exchange rate, we use the formula:
Forward Rate = (Current Rate x ((1+Home Inflation)/(1+Foreign Inflation)))
Substituting the given values, we get:
Forward Rate = (0.8511 x ((1+0.03)/(1+0.02))) = 0.8594
Therefore, the best choice is C, which represents €0.8594/$ as the forward exchange rate.

The Current Indirect Exchange Rate Is €0