The spot rate between the U.S. dollar and the New Zealand dollar is $1 = NZD1.3352....
The spot rate between the U.S. dollar and the New Zealand dollar is $1 = NZD1.3352. Assume the interest rate in the United States is 4 percent and in New Zealand is 2 percent.
What should be the 6-month forward exchange rate?
Homework Answers
| 6-month forward exchange rate | = | Spot rate*(1+p)/(1+b) | |||||||
| = | 1.3352*(1+0.01)/(1+0.02) | ||||||||
| = | 1.3221 | ||||||||
| Where, | |||||||||
| p | 6 months interest rate of New Zealand | = | 2%*6/12 | = | 0.01 | ||||
| b | 6 months interest rate of United States | = | 4%*6/12 | = | 0.02 | ||||
| Thus, | |||||||||
| 6 months forward exchange rate is | |||||||||
| $ 1 | = | NZD1.3221 | |||||||
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