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26-10-2019
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Suppose you observe a spot exchange rate of $1.0500/€. If interest rates are 5% APR in the U.S. and 3% APR in the euro zone, what is the no-arbitrage 1-year forward rate? Multiple Choice €1.0300/$ $1.0300/€ €1.0704/$ $1.0704/€

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shahzaibnaeem37 shahzaibnaeem37

26-10-2019

Answer:

Forward rate= Spot rate * (1+ US interest rate)/(1+Euro interest rate)

= 1.05*1.05/1.03

Forward rate= $1.0704/€

Explanation:

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