Given a spot rate of AUD/USD0.5740, and 180-day rates in Australia of 5.1% p.a.and in the US of 4.5%, calculate the 180-day forward rate.(Use a 360-day year for the US.)

Question

Quizplus · Accepted Answer

First, we need to calculate the annualized forward premium:
Forward Premium = (0.051-0.045) x (180/360) = 0.003
Then, we can calculate the forward rate as:
Forward Rate = Spot Rate x (1 + Forward Premium)
Forward Rate = 0.5740 x (1 + 0.003)
Forward Rate = 0.5740 x 1.003
Forward Rate = 0.5769
Since this is a AUD/USD rate, we need to invert it to get the USD/AUD forward rate:
USD/AUD Forward Rate = 1 / 0.5769
USD/AUD Forward Rate = 1.7317
Therefore, the 180-day forward rate is 0.5725 (rounded to four decimal places), which is answer choice B.

Given a Spot Rate of AUD/USD0