The spot exchange rate for Indian Rupees is Rs 42/$. The one-year forward exchange rate is Rs 43/$ and the one-year U.S. interest rate is 4%. What is the implied one year interest rate in India?

Question

Quizplus · Accepted Answer

B) Implied interest rate = (Forward rate / Spot rate) × (1 + U.S. interest rate) - 1
Implied interest rate = [(Rs. 43 / $) / (Rs. 42 / $)] × (1 + 0.04) - 1 = 6.48%

The Spot Exchange Rate for Indian Rupees Is Rs 42