Specimen exam – forward rate

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November 30, 2014 at 3:31 pm #214766
gabrielasdiana
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Hi,

I need help with Q2 from section A, specimen exam. the formula for forward rate is:
spot rate x (1+int rate foreign country)/(1+int rate in base country).

Why do the ad the last bit at the power of 0.5? I know the formula is for fwd rate in 1 year time and the answer should be in 6 months time. However, I don’t understand…..

Many thanks,
Gabi
December 1, 2014 at 9:06 pm #215541
muriela
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Power of 0.5 is 6 months like power of 1 is 12 months.
Magda
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