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CMA Final · Strategic Financial Management · Foreign Exchange Risk Management

Spot ₹/USD is 82.00. Annual interest rates are 8% in India and 4% in the USA. Using interest rate parity with simple interest for 6 months, the 6-month forward rate is closest to:

By interest rate parity the forward rate is spot multiplied by the ratio of rupee to dollar growth factors: 82 × 1.04 / 1.02 ≈ ₹83.61, which is closest to ₹83.58. The rupee trades at a forward premium because Indian interest rates are higher than US rates.

  1. A₹83.58
  2. B₹83.16Correct
  3. C₹82.00
  4. D₹80.42

Explanation

Forward = Spot × (1 + 0.08×6/12)/(1 + 0.04×6/12) = 82 × 1.04/1.02 = 82 × 1.019608 = ₹83.61. The nearest option is ₹83.58 (not ₹83.16, which comes from 82 × 1.04/1.04... check: 82×1.0141). Recomputed: 82×1.019608 = 83.608, so ₹83.58 is closest.

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