# 2 Schweser qbank questions that I think are wrong re currency fwds

The domestic interest rate is 9% and the foreign interest rate is 7%. If the forward exchange rate is DC/FC 5.00, what spot exchange rate is consistent with covered interest parity?

I think the correct answer is 5.09 - disagreeing w/Schweser. There’s also another question which is very similar where they have the same backwards answer.

If you are going to respond to this, please don’t just say the answer is correct as given & nothing more.

The currency with the higher nominal interest rate should depreciate vs. the other currency. So, in this case, the DC/FC forward rate should have more DC currency chasing the unit of FC; i.e., it should go up.

I cannot say whether Schweser’s answer is correct, because you don’t give Schweser’s answer. Yours, however, is wrong:

S0 × (1.09/1.07) = 5.00

S0 = 5.00 × (1.07/1.09) = 4.9083.

I think you were mixing up the spot rate and the forward rate.

That’s right - I mixed up the spot & forward rates. Thanks!