The forward rate is an accurate predictor of exchange rates

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If the spot rate for the Swiss Franc (SF) is that 1.15 SF is equal to 1 $U.S., and the annual interest rate on fixed rate one-year deposits of SF is 1.5% and for $U.S. is 2.5%, what is nine-month forward rate for one dollar in terms of SFs? Assuming the same interest rates, what is the 18-month forward rate for one SF in U.S. dollars? Is this an indirect or a direct rate? If the forward rate is an accurate predictor of exchange rates, in this case will the SF get stronger or weaker against the dollar? What does this indicate about the market’s inflation expectations for Switzerland as compared to the United States?

Reference no: EM131203494

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