Banking · Foreign Exchange Markets
A treasury officer observes a Spot USD/INR rate of 84.00 and 6-month forward points quoted as 80/85. If Indian interest rates are 7% and US interest rates are 4%, how should the treasury officer calculate the outright forward ask rate and what is the underlying logic according to interest rate parity?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The outright forward ask rate is 85.00, and the points are added because the Indian Rupee is expected to appreciate.
- 2The outright forward ask rate is 84.80, and the points are subtracted because the dollar is at a discount.
- 3The outright forward ask rate is 83.15, and the discount reflects the lower interest rate in India compared to the USA.
- 4The outright forward ask rate is 84.85, and the premium reflects the higher interest rate in India compared to the USA.✓
Correct answer
The outright forward ask rate is 84.85, and the premium reflects the higher interest rate in India compared to the USA.
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