ECONOMICS
FOREIGN CURRENCY MARKETS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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forward exchange rate is the rate:
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which happens to prevail in the future
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which happens to clear the current transaction
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at which market demand for foreign currency = market supply of foreign currency
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at which forward transactions are to be honoured
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Explanation:
Detailed explanation-1: -The forward exchange rate is the rate at which a commercial bank is willing to commit to exchange one currency for another at some specified future date. The forward exchange rate is a type of forward price.
Detailed explanation-2: -Forward exchange rate is that exchange rate at which forward transactions are to be honoured.
Detailed explanation-3: -Forward rate = Spot rate x (1 + foreign interest rate) / (1 + domestic interest rate). As an example, assume the current U.S. dollar to euro exchange rate is $1.1365. The domestic interest rate or the U.S. rate is 5%, and the foreign interest rate is 4.75%.
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