As of today,the spot exchange rate is €1.00 = $1.60 and the rates of inflation expected to prevail for the next year in the U.S.is 2% and 3% in the euro zone.What is the one-year forward rate that should prevail?

Question

Quizplus · Accepted Answer

To find the one-year forward rate, we can use the following formula:

(1 + foreign inflation)/(1 + domestic inflation) * spot exchange rate = one-year forward rate

Substituting the given values, we get:

(1 + 0.03)/(1 + 0.02) * 1.60 = 1.5845

Therefore, the one-year forward rate should be €1.00 = $1.5845. Option C is the correct answer.

As of Today,the Spot Exchange Rate Is €1