Find the forward rate of foreign currency Y if the spot rate is $4.50,the domestic interest rate is 6 percent,the foreign interest rate is 7 percent,and the forward contract is for nine months.(The interest rates are continuously compounded. )
A)$4.458
B)$5.104
C)$4.468
D)$4.532
E)none of the above

Question

Quizplus · Accepted Answer

Using the formula:

Forward rate = spot rate × e^((foreign interest rate - domestic interest rate) × time)

Forward rate = 4.5 × e^((0.07 - 0.06) × 0.75)

Forward rate = 4.5 × e^(0.0075)

Forward rate = 4.468

Therefore, the forward rate of foreign currency Y is $4.468. The closest option to this is option C, so the answer is C.

Find the Forward Rate of Foreign Currency Y If the Spot