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Forward rate

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Forward rate

  • This topic has 1 reply, 2 voices, and was last updated 10 years ago by John Moffat.
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  • November 23, 2014 at 12:01 pm #212386
    sikha4
    Member
    • Topics: 26
    • Replies: 7
    • ☆

    The current sppot rate for the US$ against the pound is $ to pound is 1,8420
    Interest in the US is 5%pa where as it is 4%pa in the UK, what would you exoect the 3month forward rate to be

    November 23, 2014 at 1:42 pm #212406
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54777
    • ☆☆☆☆☆

    You use the interest rate party formula on the formula sheet.

    So = 1.8420
    Hc = 0.05 x 3/12 = 0.0125
    Hb = 0.04 x 3/12 = 0.01

    So Fo = 1.8420 x 1.0125/1.01 = 1.8466

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