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Ksju [112]
3 years ago
10

Assume the spot exchange rate for the Hungarian forint is 267.767 HUF. Also assume the inflation rate in the United States is 1.

6 percent per year while it is 3.5 percent in Hungary. What is the expected exchange rate three years from now
Business
1 answer:
Margarita [4]3 years ago
3 0

Answer: 283.322 HUF

Explanation:

Following the information given in the question, the following can be deduced:

Spot rate = 267.767

Foreign currency interest rate (rf) = 1.6%

Home currency interest rate (rh) = 3.5%

Number of years (n) = 3

Therefore, the expected exchange rate 3 years from now will be calculated as:

= Spot × (1+(rh - rf))^n

= 267.767 × [1 + (35% - 16%)]³

= 267.767 × [1 + (0.035 - 0.016)]³

= 267.767 × 1.0581

= 283.322 HUF

Therefore, the expected exchange rate 3 years from now will be 283.322 HUF.

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