Question

To convert forward points into rates, divide by 10,000. For spot 1.2875, one week -0.3, one month -1.1, three months -5.5:

a. 1.2872, 1.2864, 1.2820
b. 1.2878, 1.2886, 1.2920
c. 1.2872, 1.2886, 1.2930
d. 1.2878, 1.2864, 1.2910

Answer 1

The correct forward exchange rates, calculated by subtracting the respective forward points divided by 10,000 from the spot rate, are 1.2872 for one week, 1.2864 for one month, and 1.2820 for three months, resulting in answer choice a.

Step-by-step explanation:

The given question is related to converting forward points into exchange rates for different forward contracts based on a spot rate. The question provides a spot rate and forward points for different maturities (one week, one month, and three months) and requires finding the corresponding forward exchange rates.

To convert forward points into rates, the formula is:

Forward Rate = Spot Rate + (Forward Points / 10,000)

Using the given spot rate of 1.2875, we can calculate the forward rates as follows:

1. One week forward rate: 1.2875 - (0.3 / 10,000) = 1.2875 - 0.00003 = 1.2872
2. One month forward rate: 1.2875 - (1.1 / 10,000) = 1.2875 - 0.00011 = 1.2864
3. Three months forward rate: 1.2875 - (5.5 / 10,000) = 1.2875 - 0.00055 = 1.2820

The correct answer including these forward rates is: a. 1.2872, 1.2864, 1.2820