You want to find out forward rate by interest rate parity. Suppose U.S. risk free rate...
You want to find out forward rate by interest rate parity. Suppose U.S. risk free rate is 4.0% , and Canadian risk-free rate is 2.3% . The current spot exchange rate is 1.16 canadian dollar per U.S. dollar. What is the approximate 2 year forward rate if interest rate parity holds?
Homework Answers
The interest rate parity formula will be used here. The 2 year forward rate will be:
2-year Forward Rate = 1.16 x (1+0.023)^2/(1+0.04)^2 = 1.1223
Hence, the 2-year forward rate will be = 1.1223 Canadian Dollar per USD.
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You want to find out forward rate by interest rate parity.
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