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Chapter 3

Example 1

For example, If the spot rate is GBP 1 = USD 1.6000 and the interest rates are
5% and 2% in the USA and the UK respectively,

then: F 0 = 1.6000 × (1.05 / 1.02) = 1.6471

i.e. the rate in 1 year is forecast to be GBP 1 = USD 1.6471

Illustrations and further practice

Now try Illustration 1 and TYU 1 and TYU 2 in Chapter 3

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