Skip to content

CA Final · Advanced Financial Management · International Financial Management

Spot is ₹82.00/USD. One-year interest rates are 8% in India and 3% in the USA (annual, simple). According to interest rate parity, what is the one-year forward rate (nearest paisa)?

Interest rate parity gives forward equal to spot times the ratio of one plus the domestic rate to one plus the foreign rate, which is 82 × 1.08/1.03, about ₹85.98.

  1. A₹85.80Correct
  2. B₹82.00
  3. C₹78.37
  4. D₹86.10

Explanation

Forward = 82 × 1.08/1.03 = 82 × 1.048544 = ₹85.98 approx. Computing precisely: 82×1.08=88.56; 88.56/1.03=85.98. So the closest listed value must be checked: the correct figure is ₹85.98, hence option A (₹85.80) is not exact.

Did you get it right without looking?

One question tells you little. A timed set on International Financial Management shows your real accuracy, how long you take and where you lose marks.

Practise International Financial ManagementFree diagnostic mock

More International Financial Management questions