3 Month forward rate

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December 9, 2015 at 6:18 pm #289846
Marianne
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The current spot rate is for US $ against the £ is $/£1.8420
Interest in US is 5% pa whereas it’s 4% in UK

What is the 3 month forward rate?
What is the answer to this I thought it was 1.8420*(1.05/1.04)

Thanks
December 9, 2015 at 6:22 pm #289851
Marianne
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I actually think I got it now. Would you get the Fourth root of the fraction because it is only inflated for 3 months?
December 9, 2015 at 7:33 pm #289910
John Moffat
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It is not the fourth root – you just divide by 4 to get the three month rate.
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