We can write any anticipated forward exchange rate as a function of the difference between the expected inflation rates of two countries and the current or spot exchange rate.

Question

Quizplus · Accepted Answer

This statement is true. The anticipated forward exchange rate can be calculated using the formula:

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

Wherein the difference between the expected inflation rates of the two countries is factored in by adjusting the interest rates used in the formula.

We Can Write Any Anticipated Forward Exchange Rate as a Function