Explanation:
Forward = spot × [(1 + quote currency rate) / (1 + base currency rate)]^T = 1.1562 × (1.045 / 1.035)² = 1.1787
(Book 3, Module 35.2, LO 35.k)
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Question 60
Suppose the spot rate is 1.1562 CHF per EUR. The two-year risk-free rate in Switzerland is 4.50% compounded annually, while the two-year risk-free rate in Germany is 3.50% compounded annually. What is the two-year forward exchange rate quoted as CHF per EUR (i.e., the forward price of EUR in CHF terms) so that no arbitrage opportunity exists?
A
1.1333.
B
1.1447.
C
1.1672.
D
1.1787.
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