CFA Practice Question

There are 227 practice questions for this study session.

CFA Practice Question

Suppose the domestic currency is the US$ and the foreign currency is the British pound.

  • The spot exchange rate is $1.4718.
  • The U.S. interest rate is 4.5%.
  • The British interest rate is 2.25%.
  • Assume these interest rates are fixed and don't change over the life of the forward contract. They are based on annual compounding and are not quoted as LIBOR-type rates.
  • Assume a currency forward contract has a maturity of 120 days.

With discrete compounding, what should be the forward price if you want to enter into a forward contract to long British pounds in 120 days?
A. 1.4824
B. 1.4792
C. 1.4932
Explanation: F(0, T) = F(0, 120/365) = [1.4718/(1.0225)120/365] (1.045)120/365 = 1.4824

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