CFA Level I · CFA Level I Exam · Exchange Rate Calculations
The spot exchange rate is USD/EUR 1.1000 (price of one euro in US dollars). The 3-month forward points are quoted as +25 (scaled by 10,000). The 3-month forward rate is most likely:
The 3-month forward rate is 1.1025. Forward points of +25 with a scaling factor of 10,000 equal 0.0025, which is added to the spot rate of 1.1000. A positive sign means the forward is above spot, so the base currency trades at a forward premium.
- A1.0975
- B1.1025Correct
- C1.1250
Explanation
Forward points scaled by 10,000 convert to 25/10,000 = 0.0025. Adding to the spot gives 1.1000 + 0.0025 = 1.1025. Subtracting gives 1.0975, which gets the sign wrong. 1.1250 treats the points as 250 pips by using the wrong scaling.
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