CFA Level I · CFA Level I Exam · Exchange Rate Calculations
The spot rate is CHF/GBP 1.2000 (price of one pound in Swiss francs). The 1-year risk-free rate is 4.00% in the United Kingdom and 1.00% in Switzerland. Under covered interest rate parity, the 1-year forward rate is closest to:
The forward rate is about 1.1654 CHF per GBP. The pound has the higher interest rate, so it must trade at a forward discount to prevent arbitrage. The calculation is 1.2000 multiplied by 1.01 and divided by 1.04.
- A1.1654Correct
- B1.2000
- C1.2360
Explanation
With the GBP as the base currency, F = S × (1 + r_price)/(1 + r_base) = 1.2000 × 1.01/1.04 = 1.1654. The 1.2360 option inverts the ratio of interest factors. The 1.2000 option ignores the rate differential.
Did you get it right without looking?
One question tells you little. A timed set on Exchange Rate Calculations shows your real accuracy, how long you take and where you lose marks.
More Exchange Rate Calculations questions
- A dealer quotes GBP/USD at 1.2500–1.2506 (bid–ask). A client who wants to buy USD using GBP at this dealer will most likely transact at a ra…
- A dealer quotes USD/EUR at 1.2000 and GBP/EUR at 0.8500 (price of 1 EUR in GBP). An interbank quote for USD/GBP (price of 1 GBP in USD) is 1…
- A dealer quotes the spot rate for AUD/EUR (price of one euro in Australian dollars) as 1.6000. The 180-day interest rates are 3.00% per year…
- An exchange rate is quoted as USD/EUR = 1.0800. In the price/base convention used in the CFA curriculum, this quote is most accurately inter…
- A dealer quotes USD/CHF at 0.9100/0.9106. The bid-ask spread expressed in pips and as a percentage of the bid are most likely closest to:
- The EUR/USD spot rate (USD per 1 EUR) rises from 1.1000 to 1.1330. The percentage change in the value of the euro relative to the US dollar …