CA Final · Advanced Financial Management · International Financial Management
Spot is ₹80.00/USD. One-year interest rates are 9% in India and 4% in the USA. By interest rate parity, the one-year forward rate is closest to which value?
Interest rate parity sets forward equal to spot multiplied by one plus the Indian rate divided by one plus the US rate. That is 80 × 1.09/1.04, roughly ₹83.85, the closest option being ₹83.88.
- A₹83.88Correct
- B₹84.00
- C₹76.30
- D₹80.00
Explanation
Forward = 80 × 1.09/1.04 = 87.20/1.04 = ₹83.846, i.e. about ₹83.85. The listed ₹83.88 is wrong in the third digit, so the intended nearest value is A only if rounded loosely. ₹76.30 inverts the ratio; ₹80.00 ignores the interest differential.
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