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Spot Exchange Rate

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The interest rate on South Korean government securities with one-year maturity is 4 percent, and the expected inflation rate for the coming year is 2 percent. The interest rate on U.S. government securities with one-year maturity is 7 percent, and the expected rate of inflation is 5 percent. The current spot exchange rate for Korean won is $1 = W 1,200. Forecast the spot exchange rate one year from today. Explain the logic of your answer.

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The expert forecasts spot exchange rates.

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Effective Interest Rate in Korea:- Real Interest Rate = Nominal Interest Rate - Inflation.
<br>
<br>So Real Interest Rate = ...

Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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