Question

Suppose it takes 1.3156 U.S. dollars today to purchase one British pound in the foreign exchange market, and currency forecasters predict that the U.S. dollar will depreciate by 8% against the pound over the next 30 days. How many dollars will a pound buy in 30 days? Enter your answer rounded to four decimal places. Do not enter $ or comma in the answer box. For example, if your answer is $12,300.45678 then enter as 12300.4568 in the answer box.

Answer 1

Solution :

As per the information given in the question

The spot rat of 1 British pound = 1.3156 U.S. dollars

The U.S. dollar is expected to depreciate by 8 % against the pound over the next 30 days.

This implies that more number of dollars will require to purchase a single pound.

Thus the forward rate of the pound in 30 days shall be equal to

= Spot rate * ( 1 + Rate of Depreciation )

= $ 1.3156 * ( 1 + 0.08 )

= $ 1.3156 * 1.08

= $ 1.420848

= $ 1.4208 ( when rounded off to four decimal places )

Thus the number of dollars a pound will buy in 30 days = $ 1.4208