6. Rate of return in local Currency(say $) Rate of return in foreign Currency(say £) =

12. F o = forward rate S o = current spot rate i c = interest rate in home country i b = interest rate in foreign country } IRP

14. S o = 5.4670 i c = 14% or 0.14 i b = 9% or 0.09 F = 5.4670 x (1 + 0.14) (1 + 0.09) F = 5.7178

16. Exchange Rate Forecasts Differences in Interest Rates International Fischer Effect Differences in Inflation Rates Forward Rate Premium or Discount Interest Rate Parity Fisher Effect Purchasing Power Parity Unbiased Forward Rate