Answer:
0.693
Explanation:
Given that
Exchange rate = 0.7
Interest Rates = 5% and 7%
The calculation of six-month forward rate is shown below :-
= Spot Rate x e^ (Domestic Rate - Foreign Rate) x Domestic Rate
= 0.7 x e^ ((0.05 - 0.07) x 0.05)
= 0.7 x e^ -0.001
= 0.7 x 0.99
= 0.693
Hence, the six-month forward rate is 0.693. we simply find the six moth rate by applying the formula.
