- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 8. Exchange Rate Calculations
- Subject 2. Forward Rate Calculations
CFA Practice Question
If the spot rate is $:CNY (Chinese yuan) = 6.3000 and the forward exchange rate is $:CNY = 6.3200, then the ______
B. dollar quotes at a 0.0200 CNY discount.
C. CNY quotes at a 0.0200 CNY premium.
A. dollar quotes at a 0.0200 CNY premium.
B. dollar quotes at a 0.0200 CNY discount.
C. CNY quotes at a 0.0200 CNY premium.
Correct Answer: A
A premium exists when the forward exchange rate is higher than the spot rate and a discount exists otherwise. If the one-month forward exchange rate is $:CNY = 6.3200 and the spot rate is $:CNY = 6.3000 then the dollar quotes with a premium of 0.0200 CNY.
User Contributed Comments 4
| User | Comment |
|---|---|
| schweitzdm | I thought it was C. It seems this section will require nothing more than spamming Qbank and memorizing everything that way. |
| Teeto | you need 6.3 CNY to buy 1 USD today and 6.32 to buy it in the future. So USD becomes more expensive (costs more CNY) - a premium |
| Marinov | I agree with schweitz. A quote USDCNY means that 1 yuan buys 6,3 dollars not the other way round. Of course, we know from general knowledge that it is indeed 1 dollar that buys that 6,3 yuans but the wording is misleading. |
| davidt876 | Marinov the question quotes CNY/USD - not USDCNY.. so what mislead you? Price/Base means the 6.3 is quoted in CNY. The question's fine |