The six-month interest rate in the United States is 10 percent; in Mexico it is 16 percent.The current spot rate dollars per peso is $0.20.The annualized six-month forward rate equal to ______ and peso is selling at a forward _______.
A) 0.188, discount
B) 0.212, premium
C) 0.194, discount
D) 0.206, premium

Question

Quizplus · Accepted Answer

The forward rate can be calculated using the interest rate parity formula. The peso is selling at a forward discount because the forward rate is lower than the spot rate.

The Six-Month Interest Rate in the United States Is 10