Suppose the spot exchange rate for the Hungarian forint is HUF 204.94. The infla

Question

Suppose the spot exchange rate for the Hungarian forint is HUF 204.94. The inflation rate in the United States will be 2.1 percent per year. It will be 5.1 percent in Hungary. What do you predict the exchange rate will be in one year? (Round your answer to 2 decimal places, e.g., 32.16.) Exchange rate HUF/$ What do you predict the exchange rate will be in two years? (Round your answer to 2 decimal places, e.g., 32.16.) Exchange rate HUF/$ What do you predict the exchange rate will be in five years? (Round your answer to 2 decimal places, e.g., 32.16.) Exchange rate HUF/$

Explanation / Answer

Spot Rate 1 USD = HUF 204.94 $ inflation rate = 2.10% HUF inflation rate = 5.10% Forward Rate = Spot Rate *( 1+InfRate HUF)^n/*(1+Inf rate $)^n 1 Year Forward Rate 1 USD = 204.94*(1+0.051)/(1+0.021) 210.96 2 Year Forward Rate 1 USD = 204.94*(1+0.051)^2/(1+0.021)^2 217.16 3 Year Forward Rate 1 USD = 204.94*(1+0.051)^3/(1+0.021)^3 223.54

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