If the U.S.dollar interest rate is 4% and the peso interest rate is 7%,what is the likely one-year forward rate if the spot dollar-peso rate is peso 11/$US?

Question

Quizplus · Accepted Answer

The formula for calculating the one-year forward rate is:

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

Plugging in the given values, we get:

Forward rate = 11 x (1 + 0.07) / (1 + 0.04)
Forward rate = 11 x 1.07 / 1.04
Forward rate = 11.32

Therefore, the likely one-year forward rate is peso 11.32/$US. Option B is the correct answer.

If the USDollar Interest Rate Is 4% and the Peso Interest Rate