Question

How are the forward rates between two currencies derived?

How are the forward rates between two currencies derived?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Forward exchange rate is a rate at which a contract is to be executed in future at a predetermined exchange rate. Forward exchange rate is derived with the help of spot rate and interest rates in the countries of the two currencies involved in a forward contract.

Therefore forward rate is calculated usin the spot rates and interest rates using the following formula:

Above, F is the Forward rate,

S is the spot rate,

rd is the domestic currency interest rates

rf if the foreign currency interest rates

For example, if the spot rate of CAD/USD is 1.112 and interest rate on CAD and USD is 0.6% and 0.4% annualy, then calculate the 3 month forward rate on CAD/USD.

F= 1.11255

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Find the most recent spot rates and forward rates of British pound, euro, and Yen. What...
Find the most recent spot rates and forward rates of British pound, euro, and Yen. What each rate present? Why there are only a few currencies with available forward rates?
Please calculate the forward rate between the two givenspot rates.(ex: if you have a...
Please calculate the forward rate between the two given spot rates.(ex: if you have a 1y spot and a 5y spot, you are calculating the 4y forward)3 year spot of 5.9%8 year spot of 1.7%Enter full (values rather than decimals. ex: enter 0.0325 as 3.25
Show how differences in interest rates effect forward rates?
Show how differences in interest rates effect forward rates?
use (www.federalreserve.gov) 1. Determine how exchange rates of various currencies have changed in recent months. Note...
use (www.federalreserve.gov) 1. Determine how exchange rates of various currencies have changed in recent months. Note that most of these currencies (except the British pound) may be quoted in units per dollar. In general, have most currencies strengthened or weakened against the dollar over the last three months? Offer one or more reasons to explain the recent general movements in currency values against the dollar. 2. Does it appear that the Asian currencies move in the same direction relative to...
1. How are spot exchange rates determined? a. Using historical average prices of different currencies b....
1. How are spot exchange rates determined? a. Using historical average prices of different currencies b. Taking the average of a basket of currencies c. The interaction between demand and supply of a currency relative to other currencies d. Government decree e. Predicting future currency movements in nonmember countries Question text 2. Comp-U-Learn Inc. prides itself on a competitive advantage based on their proprietary educational software technology. What two entry modes should the company avoid in order to minimize the...
How do interest rates enter in the determination of the forward exchange rate?
How do interest rates enter in the determination of the forward exchange rate?
The following table contains information on spot and forward exchange rates among U.S. dollar (USD), Malaysian...
The following table contains information on spot and forward exchange rates among U.S. dollar (USD), Malaysian ringgit (MYR), Japanese yen (JPY) and Canadian dollar (CAD). Currencies 3-month forward rate Spot rate USD/MYR 4.3936 4.3610 USD/JPY 107.3333 107.6400 USD/CAD 1.3856 1.3839 The following table contains information on the 3-month nominal risk-free rate per annum for the four different currencies 3-month nominal risk-free rate MYR USD CAD JPY 4.00% 1.00% 1.50% 0.00% Note that the Japanese yen 3-month nominal risk-free rate is...
How are exchange rates determined? Among the economic factors that influence exchange rates between two countries...
How are exchange rates determined? Among the economic factors that influence exchange rates between two countries are relative interest rates, relative inflation rates, and relative growth in real GDP. How do each of these factors influence the exchange rate? For example if the United States is growing faster than Canada, what happens to the exchange rate between US and Canadian dollars? If the rate of inflation is higher in the United States than in Canada? Or if Canada increases interest...
The exchange rate between the U.S. dollar and other currencies is dependent in the short run...
The exchange rate between the U.S. dollar and other currencies is dependent in the short run on all of the following EXCEPT A. the desirability of U.S. financial securities. B. the law of one price. C. the foreign demand for​ U.S.-produced goods. D. the level of interest rates in the United States relative to foreign interest rates.
Calculate the forward rates given the following zero rates. Year Zero rate Forward rate 1 3.5...
Calculate the forward rates given the following zero rates. Year Zero rate Forward rate 1 3.5 2 3.75 3 4.5 4 5.0
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT