CFA Level I · CFA Level I Exam · Pricing and Valuation of Forward Contracts and for an Underlying with Varying Maturities
The spot rate is 0.8000 GBP/CHF. The 180-day GBP rate is 3.00% and the 180-day CHF rate is 1.00%, both quoted annualized on a 360-day basis with simple interest. The 180-day forward rate (GBP/CHF) is closest to:
The forward rate is about 0.8079 GBP/CHF. With GBP as the price currency, multiply spot 0.8000 by 1.015 over 1.005, the half-year simple-interest growth factors, giving roughly 0.808. Inverting the ratio would wrongly give 0.7921.
- A0.7921
- B0.8000
- C0.8079Correct
Explanation
Price currency is GBP, base is CHF. F = 0.8000 x (1 + 0.03x180/360)/(1 + 0.01x180/360) = 0.8000 x 1.015/1.005 = 0.8000 x 1.009950 = 0.8080 (about 0.8079 after rounding). The 0.7921 option inverts the ratio.
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