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Hi Sir,
Can you please help me understand how this works.
Nominal Rates of interest in uk is 7% and in the US is 6%.What is the future Exchange rate between Dollar and pound
To forecast the exchange rate you should use the formula on the formula sheet and multiply the current exchange rate by 1+ ic / 1 + ib
So, if you have the current exchange rate ($/GBP) then you would multiply it by 1.06/1.07 to forecast the exchange rate in one years time.
Hi sir,
In June 2011 Question 2, I notice that the way in which examiner calculate the future spot rate in 6 months’ time using both PPPT (part b) and IRPT (part c) is that he first calculated
Step1: the future spot rate in 1 year’s time
Step 2: (the difference between the future spot rate in year’s time derived from
step 1 and the current spot rate) x 1/2
Step 3: figure derived from step 2 add to or subtract from the current spot rate
= future spot rate in 6 months’ timeMy method would be slightly different in the sense that I will not follow the above steps but rather calculate as follows:
For PPPT, current spot rate x [(1+hc)/(1+hb)]^½
For IRPT , current spot rate x [(1+icx½)/(1+ibx½)]Sir, are both of my methods equally correct and acceptable, albeit the final figure derived would be slightly different from that of the examiner?
I seek for your clarification. Your reply is much appreciated. Thank you sir.
Best regards,
Esther Pang
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