The spot exchange rate for the Mexican peso is 0.081 CAD/MXN.If the one-year Canadian interest rate is 4.5% and the one-year Mexican interest rate is 7.6%,compute the implied one-year forward rate in CAD/MXN.

Question

Quizplus · Accepted Answer

The implied one-year forward rate can be calculated using the interest rate parity formula, which is $F = S \times \frac{(1 + i_{domestic})}{(1 + i_{foreign})}$, where $F$ is the forward rate, $S$ is the spot rate, $i_{domestic}$ is the domestic interest rate, and $i_{foreign}$ is the foreign interest rate. Plugging in the given values: $F = 0.081 \times \frac{(1 + 0.045)}{(1 + 0.076)} = 0.079 CAD/MXN$.

The Spot Exchange Rate for the Mexican Peso Is 0