Suppose the spot and six-month forward rates on the Norwegian krone are Kr 5.71

Question

Suppose the spot and six-month forward rates on the Norwegian krone are Kr 5.71 and Kr 5.86, respectively. The annual risk-free rate in the United States is 3.51 percent, and the annual risk-free rate in Norway is 5.21 percent.

The six-month forward rate on the Norwegian krone would have to be Kr/$  to prevent arbitrage. (Round your answer to 4 decimal places. (e.g., 32.1616))

Suppose the spot and six-month forward rates on the Norwegian krone are Kr 5.71 and Kr 5.86, respectively. The annual risk-free rate in the United States is 3.51 percent, and the annual risk-free rate in Norway is 5.21 percent.

Explanation / Answer

Ans: Forward Rate= Spot rate* interest rate of Kr/ Interest Rate of US 5.71*5.21/3.51 8.48

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