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How to recognize domestic and foreign currency
AFM
Hi sir, How did we recognize UK interest rate is domestic interest rate in this question ? In question they did not mentioned we are UK residents right. Is it because it is high interest rate ? Should we take high interest rate as Domestic interest rate ? What is the basis of the same ? Video Details ------------- Advanced Financial Management - AFM Foreign Exchange Exposure and Risk Management #61. Illustration # 16 - Forward
Answers (3)
GBP >USD SO in this case 1 USD = 0.75 GBP IN USDINR = 83 Base currency is USD and INR is quote currency . In such a quote Forward rate = Spot 83 * ( 1 + Dom ( india) ) / ( 1 + Foreign ( US) Same logic applies here too 0.7570 is USDGBP so forward = ( 0.7570 x ( 1+7.5% ( domestic i.e UK) / ( 1+ foreign i.e us i.e 3.5%))
Sriram Somayajula Admin
GBP >USD SO in this case 1 USD = 0.75 GBP IN USDINR = 83 Base currency is USD and INR is quote currency . In such a quote Forward rate = Spot 83 * ( 1 + Dom ( india) ) / ( 1 + Foreign ( US) Same logic applies here too 0.7570 is USDGBP so forward = ( 0.7570 x ( 1+7.5% ( domestic i.e UK) / ( 1+ foreign i.e us i.e 3.5%))
SO it means quote currency interest rate will be Domestic interest rate right sir ?
Thread Starter
B. DineshSO it means quote currency interest rate will be Domestic interest rate right sir ?
Mostly yes. because most of the currencies are quoted against dollar like that barring a few exceptions like GBP, EUR, NZD & AUD
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