- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 8. Exchange Rate Calculations
- Subject 2. Forward Rate Calculations

###
**CFA Practice Question**

The current exchange rate between Thai bahts and U.S. dollars is 35 baht/$1. The one-year interest rate available on U.S. treasury securities is 4.5% and the equivalent rate on Thai debt instruments is 13.5%. According to interest rate parity, what should the one-year forward baht/$ exchange rate be?

A. 39.725

B. 38.014

C. 36.575

**Explanation:**F/35 = (1 + 0.135)/(1 + 0.045)

F = 38.014

Remember that the higher interest rate currency is expected to depreciate.

###
**User Contributed Comments**
5

User |
Comment |
---|---|

isida |
currency is quoted DC/FC |

sharon |
Thai is domestic |

volkovv |
From US investor perspective it is FC/DC, works both ways, just got to be careful with the formula. |

bbadger |
Just remember higher interest rate currency has to depreciate to make IR parity work and you can figure out which way to multiply/divide regardless of which way the currency is quoted. |

houstcarr |
has nothing to do with traders expecting a currency to appreciate/depreciate, it is just a no-arb condition based on prevailing rate differentials and the spot rate |