Suppose the spot and six-month forward rates on the South Korean won are SKW 1,3

Question

Suppose the spot and six-month forward rates on the South Korean won are SKW 1,304.97 and SKW 1,314.84, respectively. The annual risk-free rate in the United States is 5 percent, and the annual risk-free rate in South Korea is 7 percent. (Enter your answer as directed, but do not round intermediate calculations.)

What must the six-month forward rate be to prevent arbitrage? (Do not include the South Korean won sign (SKW). Round your answer to 4 decimal places (e.g., 32.1616).)

Suppose the spot and six-month forward rates on the South Korean won are SKW 1,304.97 and SKW 1,314.84, respectively. The annual risk-free rate in the United States is 5 percent, and the annual risk-free rate in South Korea is 7 percent. (Enter your answer as directed, but do not round intermediate calculations.)

Explanation / Answer

Six month interest rate for south korea = 7 *6/12 = 3.5%

united states = 5 *6/12 = 2.5%

Forward rate = spot rate (1 +Interest rate of south korea) /(1+ united states interest rate)

                           = 1304.97 (1 +.035 ) /(1 +.025)

                           = 1304.97 * 1.035 / 1.025

                          =   1317.70

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