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Your company has posted you on a 27-month overseas assignment in Budapest, Hungary
Your company has posted you on a 27-month overseas assignment in Budapest, Hungary. You will be living on the Buda side of the river, but will be spending much of your time on the Pest side. The current indirect rate for the Hungarian forint is 186.63 forints per U.S. dollar. If the anticipated inflation rate in the United States is 3.6% and the anticipated inflation rate in Hungary is 6.7% (annually), what exchange rate do you anticipate at the end of your assignment?
Expert Solution
Forward rate for Hugarian Floriants per US Dollar = Spot rate for Hugarian Floriants per US Dollar * ((1 + Hungary inflation rate)Time to Maturity / (1 + US inflation rate)Time to Maturity)
Forward rate for Hugarian Floriants per US Dollar = 186.63 * ((1 + 6.7%)(27 months / 12 months) / (1 + 3.6%)(27 months / 12 months))
Forward rate for Hugarian Floriants per US Dollar = 199.43 Hugarian Floriants per US Dollar
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