Explanation:
We know that we are dealing with EUR/USD quotes. So, we calculate as:
(1.2863 / 1.2960) - 1 = -0.00748 = -0.748%
This was expected because clearly, there was a decrease in EUR/USD, indicating that EUR is depreciating.
Note: The Euro is actually the base currency in line with the XXX/YYY format favored by FRM examiners, where X is the base currency and Y the quote currency. Clearly, the euro has depreciated against the dollar; after one year, it can only get you 1.2863 USD from a previous high of 1.2960 USD. Negative appreciation = depreciation.
Q-3829: A forex trader noticed the EUR/USD spot rate was 1.2960 and expected to be 1.2863 after one year. What is the euro (EUR) expected appreciation/depreciation against the US dollar over the next year?
A
-0.748%
B
0.748%
C
0.651%
D
-0.651%
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