Suppose the spot price of the British pound is currently $1.75. If the risk-free interest rate on...

Question:

Suppose the spot price of the British pound is currently $1.75. If the risk-free interest rate on one-year government bonds is 6.80% in the United States and 5% in the United Kingdom, what must the forward price of the pound be for delivery one year from now?

Forward Rate

A forward rate is the future value of one currency that is agreed upon by the bank to pay factored in the changes in the value mainly due to interest rates between two countries.

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Forward Rate: Definition & Formula

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Chapter 2 / Lesson 11
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Learn about forward interest rates. Understand what a forward rate is and how to identify spot rates, and calculate forward interest rates using the formula.


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