Question: Question 9 Describe how you would calculate a 2-year forward exchange rate of Euros / US dollars if you knew the current spot exchange rate

Question 9

Describe how you would calculate a 2-year forward exchange rate of Euros / US dollars if you knew the current spot exchange rate and the prices of 2-year Government bonds denominated in Euros and US dollars. If there are 3 Euros per US dollar in the spot market, and if the interest rates are 5% in Europe and 7% in the US, what is the 2-year forward rate of Euros per US dollar?

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