Spot rate is AUD/USD 0.7654-0.7659. US interest rate is 7.73% per annum and Australian interest rate is 8.64% per annum. Estimate the three-month forward buy rate.
Answer: 0.7637
How to work it out please?
The exchange rate in 3 month forward rate =0.7654*(1+USD
Interest Rate)^(3/12)/(1+Aus Rate)^(3/12)
=0.7654*(1+7.73%)^0.25/(1+8.64%)^0.25 =0.7637
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