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If the INR interest rate is 7% and USD rate is 4% (both annual), IRP implies USD/INR forward should trade at approximately:
ASame as spot rate
B3% discount on USD (within the standard regulatory framework)
C11% premium on USD
D3% premium on USD (USD stronger forward)
Answer & Solution
Correct answer: D. 3% premium on USD (USD stronger forward)
1. Identify what the question asks: this concept maps to irpdirection (§8.1).
2. Apply the framework or formula relevant to the topic.
3. Eliminate distractors and arrive at the correct option (D).
_Source: ICAI BoS CA Final Paper 2, Ch 10 "Foreign Exchange Exposure and Risk Management"_
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