The spot rate of British pound is quoted at $1.49. The 90-day forward rate exhibits a 2% discount. What is the 90-day forward rate of the pound?
A) $1.52
B) $1.61
C) $1.37
D) $1.46

Question

Quizplus · Accepted Answer

The 90-day forward rate can be calculated using the formula:
Forward exchange rate = Spot exchange rate x (1+ (Interest rate of foreign currency x Time))/ (1+ (Interest rate of domestic currency x Time))

Here, we are given that the spot rate of the pound is $1.49. We are also given that the 90-day forward rate exhibits a 2% discount. This means that the forward rate is lower than the spot rate by 2%. Therefore, we can calculate the forward rate as follows:

Forward exchange rate = $1.49 x (1+ (0 x 90/365))/ (1+ (0.02 x 90/365))
= $1.49 x (1+0)/ (1+0.004)
= $1.49 x 0.9956
= $1.4825

Therefore, the 90-day forward rate of the pound is $1.4825, which is closest to option D ($1.46).

The Spot Rate of British Pound Is Quoted at $1