The current indirect exchange rate is 0.652 GBP per USD.The anticipated annual inflation rate is 4% in the United States and 2% in the UK.If the cash inflow in pounds is 40,000 in one year,what are the 50,000 GBP worth in U.S.dollars after conversion from pounds to dollars using the forward exchange rate?

Question

Quizplus · Accepted Answer

The forward exchange rate can be calculated using the formula: Forward Rate = Spot Rate * (1 + Inflation Rate of Domestic Country) / (1 + Inflation Rate of Foreign Country). Here, the spot rate is 0.652 GBP/USD. The forward rate is 0.652 * (1 + 0.04) / (1 + 0.02) = 0.652 * 1.04 / 1.02 = 0.664. The cash inflow in pounds is 50,000 GBP, so in USD it is 50,000 / 0.664 = $62,552.63.

The Current Indirect Exchange Rate Is 0