CFA Level I · CFA Level I Exam · Capital Flows and the FX Market
A dealer quotes a EUR/USD spot rate of 1.0850 and a 3-month forward rate of 1.0910. The forward points are most likely quoted as:
The forward points are +60. Forward points equal the forward rate minus the spot rate, expressed in units of the fourth decimal place. The difference of 0.0060 equals 60 points, so the base currency EUR trades at a forward premium.
- A+6 pips
- B+60 pipsCorrect
- C+600 pips
Explanation
Forward points are the forward rate minus the spot rate, scaled to the fourth decimal place for this pair. 1.0910 - 1.0850 = 0.0060, which is 60 points. Answer A understates the scale by a factor of 10, and C overstates it by a factor of 10.
Did you get it right without looking?
One question tells you little. A timed set on Capital Flows and the FX Market shows your real accuracy, how long you take and where you lose marks.
More Capital Flows and the FX Market questions
- An exchange rate is quoted as EUR/USD = 1.0800. In this quotation, the euro is most likely the:
- In the foreign exchange market, the largest share of daily trading volume is most likely accounted for by:
- Which of the following is most likely to be classified as foreign direct investment rather than foreign portfolio investment?
- The spot GBP/USD rate is 1.2500 and the spot EUR/USD rate is 1.0000. A dealer quotes GBP/EUR at 1.2700. An arbitrageur starting with GBP 1,0…
- Covered interest rate parity is enforced mainly by which of the following market forces?
- Over one year, the nominal exchange rate of the domestic currency (quoted as domestic per foreign) is unchanged. Domestic inflation is 6% an…