The current indirect exchange rate is €0.7714/$. The anticipated annual inflation rate is 2% in the United States and 5% in the Euro zone. What is the forward exchange rate?
A) €0.7494/$
B) €0.7714/$
C) €0.7941/$
D) €0.8063/$
Answer: C
Explanation: C) The forward exchange rate is: Spot rate × (1 + rate foreign)/(1+ rate domestic)
= €0.7714/$ × = €0.7941/$
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