If the current spot exchange rate on the Euro is $1.2812/€ and the two year risk free rate for borrowing in dollars is 3% and 4% for borrowing in Euros,what should be the two year $/€ forward exchange rate?

Name: If the current spot exchange rate on the Euro is $1.2812/€ and the two year risk free rate for borrowing in dollars is 3% and 4% for borrowing in Euros,what should be the two year $/€ forward exchange rate?
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Question

Quizplus · Accepted Answer

1.2812[(1.03)^2/(1.04)^2] = 1.2567

If the Current Spot Exchange Rate on the Euro Is