CFA CFA Level 1 forward exchange rates

forward exchange rates

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      7

      Where in Kaplan do you multiply the two rates together? I thought you take the 90 day forward and divide by 4? Otherwise I didnt know if you take the spot and multiply by 1-.0025?

      The spot CHF/EUR exchange rate is 1.2025. If the 90-day forward quotation is +0.25%, the 90-day forward rate is closest to:

      A)

      1.2055.

      B)

      1.2000.

      C)

      1.2050.

      Explanation

      The 90-day forward CHF/EUR exchange rate is 1.2025 × 1.0025 = 1.20551. The EUR is at a forward premium to the CHF.

      (Study Session 5, Module 18.2, LOS 18.e)

      Related Material

      SchweserNotes – Book 2

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      3

      Aren’t forward rates usually quoted in pips, i.e. added or subtracted? Since it’s denoted +0.25% multiplying by 1.0025 makes sense.

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