Annual interest rate on fixed rate

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Reference no: EM13768249

If the spot rate for Euro is .81 Euro is equal to 1 US $, and the annual interest rate on fixed rate one-year deposits of Euro is 2.5% and for US$ is 1.5%, what is the nine-month forward rate for one Euro in terms of dollars? Assuming the same interest rates, what is the 18-month forward rate for one dollar in Euros? Is this an indirect or a direct rate? If the forward rate is an accurate predictor of exchange rates, will the Euro get stronger or weaker against the dollar? What does this indicate about the market’s inflation expectations in the Euro-zone compared to the US?

Reference no: EM13768249

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