Explanation

Forward points represent the adjustment to the spot rate to calculate the forward rate. The key is understanding whether to add or subtract the forward points.

Given:

• USD/EUR spot rate = 1.0993 (meaning 1 EUR = 1.0993 USD)
• USD/EUR 6-month forward points = 11.7

Interpretation:

• Forward points are typically quoted as basis points (1 basis point = 0.0001)
• 11.7 forward points = 11.7 × 0.0001 = 0.00117

Calculation: The forward rate is calculated as: Forward Rate = Spot Rate + Forward Points Forward Rate = 1.0993 + 0.00117 = 1.10047 ≈ 1.1005

Why add rather than subtract? In FX markets, forward points are quoted such that:

• If the forward points are positive, you ADD them to the spot rate
• If the forward points are negative, you SUBTRACT them from the spot rate

Positive forward points indicate that the base currency (EUR) is trading at a forward premium relative to the quote currency (USD). This means the forward rate is higher than the spot rate.

Verification: 1.0981 would result from subtracting the forward points (1.0993 - 0.00117 = 1.09813), which is incorrect. 1.2279 is clearly wrong as it's much too high.

Therefore, the correct forward rate is 1.1005.