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papahomer papahomer
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Assume that the interest rate in India is 10% while in Europe it is 3% and that the exchange rate is 65.50 rupees to the euro. What would we expect the 6 month exchange rate to be?
Textbook 
Financial Management: Principles and Applications

Financial Management: Principles and Applications


Edition: 13th
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vanrheevanrhee
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The higher interest rate in India implies that the the rupee will weaken against the euro. Specifically, (1 + .03/2)/(1 + .10/2)=Forward Exchange Rate/65.50 so the 6 month forward exchange rate should be 67.76 rupees to the euro.
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