The spot exchange rate for British pounds is 0.5025 (GBP/USD). The one-year risk-free rates in the United States and Britain are 3 percent and 2.75 percent, respectively. What is the forward exchange rate in GBP/USD?

Question

Quizplus · Accepted Answer

The forward exchange rate can be calculated using the formula: Forward Rate = Spot Rate * (1 + Interest Rate of Domestic Currency) / (1 + Interest Rate of Foreign Currency). Here, the domestic currency is USD and the foreign currency is GBP. So, Forward Rate = 0.5025 * (1 + 0.03) / (1 + 0.0275) = 0.5013.

The Spot Exchange Rate for British Pounds Is 0