Suppose you observe a spot exchange rate of $1.50/€. if interest rates are 5% apr in the u. s. and 3% apr in the euro zone, what is the no-arbitrage 1-year forward rate? $1.5291/€ €1.4714/$ €1.5291/$ $1.4714/€

The no-arbitrage 1-year forward rate in $/€, F($/€) is given by



where S($/euro) is the spot exchange rate in $/€, is the interest rate in the US and is the exchange rate in the Euro zone.

Thus, given that the spot exchange rate is $1.50/€ and interest rates are 5% apr in the u.s. and 3% apr in the euro zone.

The no-arbitrage 1-year forward rate is given by:

6(2x + 5y)6 (2x) = 12x6 (5y) = 30y12x + 30y