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Hi, I was wondering if there was a way to tell which country is the home country and which is the base? For example in this below question on the BPP progress quiz, it isn’t stated explicitly which is the base country:
The exchange rate between the US dollar and the euro is $1.20=€1.
Interest rates in USA are 4.5% and in Europe they are 6%.
What is the six-month forward exchange rate implicit in this data?In my notes the formula is spot rate of base country * (1+expected interest of overseas company)/(1+ expected interest of base country). In this instance I took the USA to be the base country, therefore doing $1.20*(1.03/1.0225) but the answer has it the other way around.
Thanks and apologies if this was already mentioned in lectures – I studied using old lectures purchased from a local college so I didn’t use opentuition as my study source.
I do explain this in my free lectures, and although you may choose not to watch them you really cannot expect me to type out my lectures here 🙂
The base country is the one against which the other currency is being quoted. In your example, the dollar is being quoted against 1 euro, and therefore euro is the base country.
(I don’t know how old the lectures you are using are, but appreciate that there have been changes to the syllabus over the years. Our free lectures are always up-to-date for the current syllabus.)
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