Explanation:
Forward = spot × [(1 + r_NZD) / (1 + r_CHF)]
(Note that the interest rates must match the way the quote is based.) Here, the forward rate is quoted as CHF per NZD, so use the NZD rate in the numerator and the CHF rate in the denominator:
Forward = 0.79105 × (1.05235) / (1.0565)
Forward = 0.78794
(Book 3, Module 35.2, LO 35.k)
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Question 63
Suppose you live in New Zealand and can invest in NZD at 5.235%, or you can invest in Swiss francs (CHF) at 5.65%. The current spot rate is CHF/NZD 0.79105. What is the one-year forward rate expressed in CHF/NZD, assuming rates are compounded annually?
A
0.78794.
B
0.78894.
C
0.79417.
D
0.79434.
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