Explanation:
Using CIRP: F = S × (1 + r_quote × T) / (1 + r_base × T) = 1.30000 × (1 + 0.02 × 0.75) / (1 + 0.04 × 0.75) = 1.30000 × 1.015/1.030 = 1.28107 EURYYY. Converting to points: (1.28107 - 1.30000) × 10,000 = -189.3 points. Closest is -188.0. The forward is at a discount because the base currency (EUR) has a higher interest rate than the quote currency (YYY).
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Q-2 (22.17.2): The current spot exchange rate between the euro (EUR) and quote currency YYY is 1.30000 EURYYY. The EUR risk-free rate is 4.0% and the YYY risk-free rate is 2.0%; each interest rate is per annum with annual compounding. According to covered interest rate parity (CIRP), which is nearest to the forward rate in nine months ( years) quoted in points?
A
-12.576
B
-188.0
C
+33.0
D
+291.0
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