Question

On the Forex market, you observe the following hypothetical quotes:

Spot rate: £:$ = 1.2375

One-year interest rate in the US = 0.50%

One-year interest rate in UK = 0.25%.

What should be the quote for the one-year forward exchange rate of $:£?

	A.	1.2344
	B.	0.8061
	C.	1.2406
	D.	0.8101

Answer 1

Formula for 1-year forward Exchange Rate:-

Forward Exchange Rate = Spot rate*(1+One year Interest rate of US)/(1+One year Interest rate of UK)

Forward Exchange Rate = 1.2375*(1+0.0050)/(1+0.0025)

Forward Exchange Rate = 1.2406

So, the quote for the one-year forward exchange rate of $:£ is 1.2406

Option C

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