The one-year forward rate of the British pound is $1.55, while the current spot rate is $1.60. Based on the forward rate, what is the expected percentage change in the British pound over the next year?
A) +5.0%
B) -3.1%
C) +3.1%
D) +3.2%
E) None of the above

Question

Quizplus · Accepted Answer

To calculate the expected percentage change in the British pound over the next year, we can use the formula: [(Forward Rate - Spot Rate) / Spot Rate] x 100%. Plugging in the numbers, we get [(1.55 - 1.60) / 1.60] x 100% = -0.031, or -3.1%. Therefore, the best choice is B as it is the only option that matches the calculated percentage change.

The One-Year Forward Rate of the British Pound Is $1