|Author||Topic: question regarding forward exchange rate|
|The question is:
Consider two currencies, the WSC and BDR. The spot WSC/BDR exchange rate is 2.875, the 180-day riskless WSC rate is 1.5% and the 180-day riskless BDR rate is 3.0%. The 180-day forward exchange rate that will prevent arbritage profits is closest to:
1. 2.833 WSC/BDR 2. 2.854 WSC/BDR 3. 2.918 WSC/BDR
The answer is B. They took the riskless rates and divided it by 2. I don't understand why they did that?
|The riskless rates are represented for 180 days however on a annual basis. So to get 180 day rates, you will have to divide it by 2 to get the correct answer.|
CFA Discussion Topic: question regarding forward exchange rate
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