Answer: -9.0

## Explanation Forward points represent the difference between the forward exchange rate and the spot exchange rate, typically expressed in basis points. The formula for calculating forward points is: **Forward Points = Forward Rate - Spot Rate** To calculate the forward rate, we use the interest rate parity formula: **Forward Rate = Spot Rate × [(1 + r_quote × t) / (1 + r_base × t)]** Where: - Spot Rate = 1.0072 CHF/USD (CHF per 1 USD) - r_quote = CHF interest rate = 0.63% = 0.0063 (CHF is the quote currency) - r_base = USD interest rate = 0.75% = 0.0075 (USD is the base currency) - t = 270/360 = 0.75 (assuming 360-day year convention) **Step 1: Calculate the forward rate** Forward Rate = 1.0072 × [(1 + 0.0063 × 0.75) / (1 + 0.0075 × 0.75)] First, calculate the numerator: 1 + (0.0063 × 0.75) = 1 + 0.004725 = 1.004725 Second, calculate the denominator: 1 + (0.0075 × 0.75) = 1 + 0.005625 = 1.005625 Third, calculate the ratio: 1.004725 / 1.005625 = 0.999105 Finally, calculate the forward rate: Forward Rate = 1.0072 × 0.999105 = 1.006298 **Step 2: Calculate forward points** Forward Points = Forward Rate - Spot Rate Forward Points = 1.006298 - 1.0072 = -0.000902 **Step 3: Convert to basis points** Since forward points are typically quoted as the last 4 decimal places × 10,000: -0.000902 × 10,000 = -9.02 points **Step 4: Compare with options** -9.02 points is closest to option B: -9.0 **Key Concept**: When the quote currency (CHF) has a lower interest rate than the base currency (USD), the forward rate will trade at a premium (higher value) relative to the spot rate. However, in this case, the calculation shows a slight discount (negative forward points) because the interest rate differential is small and the spot rate adjustment results in a slightly lower forward rate. **Verification**: The interest rate differential is 0.12% (0.75% - 0.63%) in favor of USD. According to interest rate parity, the currency with the higher interest rate (USD) should trade at a forward discount relative to the spot rate, which is consistent with our negative forward points result.

Author: LeetQuiz .