Question

the fijian dollar is currently trading for AUD 2.55. if the interest rate in australia is 5.5% and the interest rate in New Zealand is 6.5% what would be the one year forward exchange rate

Answer 1

Since the interest rate in Australia is 5.5% and the interest rate in New Zealand is 6.5%, then the one-year forward exchange rate is 1 Fijian dollar equals 2.53 AUD.

The information given from the question is that 1 Fijian dollar = 2.55 AUD.

Based on the information, the foreign currency is Fijian dollar while the home currency is AUD. Therefore, the forward rate will be:

= 2.55 × [(1 + 5.5%) / (1 + 6.5%)

= 2.55 × (1.055 / 1.065)

= 2.55 × 0.99

= 2.53

In conclusion, 1 Fijian dollar equals 2.53 AUD.

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