Homework Answers
Answer
As per the Interest Rate Parity Theory,
Forward Rate = Sport rate {(1+i$)/ (1+i£)}
where i$ means interest rate in USA and i£ means Interest rate in UK
So = 1.85 {(1+0.053)/ (1+ 0.062)}
= $ 1.834
1 year forwards Price of Pound as per Interest Rate Parity Theory is $ 1.834
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