The current indirect exchange rate is 0.652 GBP per USD. The anticipated annual inflation rate is 4% in the United States and 2% in the UK
If the cash inflow in pounds is 40,000 in one year, what are the 50,000 GBP worth in U.S. dollars after conversion from pounds to dollars using the forward exchange rate?
A) $63,480.78
B) $63,874.27
C) $62,552.63
D) $63,983.78
Answer: C
Explanation: C) First, we compute the forward exchange rate: 0.652 ∗ (1.02/1.04) = 0.6394615.
Second, we convert all pounds into dollars using the forward exchange rate:
40,000 GBP/.06394615 = $62,552.63
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