I want to know that when the forward exchange rate calculates which interest rate should be used deposite rate or borrowing rate.
I think exchange rate rather than interest rate should be used.
It depends on whether the question is receivable or payable. If it is receivable use the higher forward rate, but if it is payable use lower forward rate.When to use deposit or borrow rate is when you are working on money market.
For money market:
Receivable, borrow foreign currency and deposit on local currency. To get the amount to be borrowed divide foreign currency by borrow rate of foreign currency and convert to local currency using the higher spot rate, after you will multiply with deposit rate of local currency.
Payable, borrow local currency and deposit foreign currency. To get the amount to be borrowed divide foreign currency by deposit rate of foreign currency and convert to foreign currency using the lower spot rate, after you will multiply with borrowing rate of local currency.