CMA Final · Strategic Financial Management · The International Financial Environment
Spot rate is ₹80.00/USD. One-year interest rates are 6% in India and 4% in the USA. Using interest rate parity, what is the one-year forward rate (to the nearest paisa)?
Interest rate parity gives forward equals spot times (1 plus Indian rate) divided by (1 plus US rate). Here 80 × 1.06 / 1.04 equals about ₹81.54 per USD, so the rupee trades at a forward discount.
- A₹81.54Correct
- B₹82.40
- C₹80.00
- D₹78.48
Explanation
Forward = 80 × 1.06/1.04 = 84.80/1.04 = ₹81.54. Option ₹82.40 wrongly uses 80×1.03 (simple difference of rates would give 80×1.02=81.60, not 82.40 either). Option ₹78.48 inverts the ratio (80×1.04/1.06).
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