Future Price Valuation

shah.vishal
Good Student
Posts: 11
Joined: Fri Mar 15, 2013 3:12 pm

Future Price Valuation

Postby shah.vishal » Sat Mar 16, 2013 7:49 pm

Assume that the current 1-year forward exchange rate is 1.200 USD per EUR. An American bank pays 2.4% annual interest rate on a 1-year deposit and a 4.0% annual interest rate on a 3-year USD deposit. A European bank pays a 1.5% annual interest rate for a 1-year deposit and a 2.0% annual interest rate for a 3-year EUR deposit. The forward exchange rate in USD per EUR for exchange three years from today is closest to:
How to solve this on Calculator BA II

content.pristine
Finance Junkie
Posts: 356
Joined: Wed Apr 11, 2012 11:26 am

Future Price Valuation

Postby content.pristine » Mon Mar 25, 2013 12:07 pm

Dear Vishal,
This question needs more of drawing time-lines and concepts of time value of money more than the use of calculator.
Take a look at my pictoral solution.. Let me know if there are any further doubts
http://i.imgur.com/gQ1xOOB.jpg


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