Forward rate

This topic has 1 reply, 2 voices, and was last updated 11 years ago by John Moffat.

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November 23, 2014 at 12:01 pm #212386
sikha4
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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
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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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