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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › FORWARD EXCHANGE QUESTION
HELLO SIR JOHN MOFFAT,
The home currency of Acaba Co is the dollar ($) and it trades with a company in a foreign country whose home currency is the Dinar. The following information is available:
Home country Foreign country
Spot rate 20.00 Dinar per $
Interest rate 3% per rate 7% per year
Inflation rate 2% per year 5% per year
What is the six-month forward exchange rate?
THIS KIND OF QUESTIONS REALLY CONFUSE ME
HELLO SIR JOHN MOFFAT,
The home currency of Acaba Co is the dollar ($) and it trades with a company in a foreign country whose home currency is the Dinar. The following information is available:
Spot rate 20.00 Dinar per $
Home country
Interest rate 3% per rate
Inflation rate 2% per year
FOREIGN COUNTRY
Interest rate 7% per rate
Inflation rate 5% per year
What is the six-month forward exchange rate?
THIS KIND OF QUESTIONS REALLY CONFUSE ME
THE PREVIOUS POST GOT MIXED UP IN THE TABLE
Please do not simply set test questions and expect me to provide a full answer. You must have an answer in the same book in which you found the question and so you should ask about whatever it is in the answer that you are not clear about – then I will help you.
Have you watched my free lectures on this? For forward rates you use the interest rate parity formula that is given on the formula sheet. Given that the question wants a 6 month forward rate, you use half of the yearly rates i.e. 1.5% and 1%.