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CMA Final · Strategic Financial Management · The International Financial Environment

Spot USD/INR is 83.00. One-year interest rates are 8% in India and 4% in the US. Under interest rate parity, what is the one-year forward USD/INR rate (nearest rupee)?

The forward rate is about 86 rupees per dollar. Interest rate parity multiplies spot by the ratio of the rupee gross interest rate (1.08) to the dollar gross rate (1.04), giving roughly 86.19. The higher-interest currency trades at a forward discount.

  1. A86Correct
  2. B83
  3. C80
  4. D89

Explanation

Forward = 83 x 1.08/1.04 = 83 x 1.03846 = 86.19, which rounds to 86. Option 80 inverts the ratio (83 x 1.04/1.08 = 79.9). Option 89 adds the 8% rate alone to spot.

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