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FX Forward by Interest Parity

Goldman SachsBarclays

The spot exchange rate is 1.20 USD per EUR. One-year rates are 4% in USD and 2% in EUR. By covered interest parity, what is the 1-year forward rate (USD per EUR, to four decimals)?

Approach

F = S·(1 + r_domestic)/(1 + r_foreign), with domestic = the quote currency (USD).

Multiply spot by the ratio of gross rates.