Posted by forex at 5:47 AM
Read our previous post
1. Add 1 to the interest rate of the foreign country. Then raise the number to the power of the number of periods the interest rate will compound. In our example, 1 plus 0.06 equals 1.06, then 1.06 raised to the 1st power equals 1.06.
2. Multiply the number in Step 1 by the current exchange rate. In our example, 1.06 times 1.2 equals 1.272.
3. Add 1 to the interest rate of the home country. Then raise the number to the power of the number of periods the interest rate will compound. In our example, 1 plus 0.055 equals 1.055, then 1.055 raised to the 1st power equals 1.055.
4. Divide the number calculated in Step 2 by the number calculated in Step 3. In our example, 1.272 divided by 1.055 equals a foreign exchange forward rate of 1.205687204.