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Q.4190 A Japanese company X wants to compute the one-year forward USD/JPY rate, with a spot dollar selling at 132 USD/JPY. The JPY per annum interest rate is equal to 4%, and the annual interest rate for USD is 11%. Calculate the one-year forward exchange rate USD/JPY. | Financial Risk Manager Part 2 Quiz - LeetQuiz

Explanation:

According to covered interest rate parity, the interest rate differential between two countries is equal to the differential between the forward exchange rate and the spot exchange rate.

The forward exchange rate is given by:

F = S \times \left( \frac{1 + R_{\text{JPY}}}{1 + R_{\text{USD}}} \right)^T

= 132 \times \left( \frac{1.04}{1.11} \right)^1

= 123.6758

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Q.4190 A Japanese company X wants to compute the one-year forward USD/JPY rate, with a spot dollar selling at 132 USD/JPY. The JPY per annum interest rate is equal to 4%, and the annual interest rate for USD is 11%. Calculate the one-year forward exchange rate USD/JPY.

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