If the spot rate for the Won is 800 won equals 1 US $, and the annual interest rate onfixed rate one-year deposits of won is 9% and for US$ is 3%, what is the one-yearforward rate for one won in terms of dollars? Assuming the same interest rates, what isthe 8-month forward rate for one dollar in terms of won? Is this an indirect or a directrate? If the forward rate is an accurate predictor of exchange rates, in this case will thewon get stronger or weaker against the dollar? What does this indicate about inflationexpectations in Korea compared to the US?
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