CFA Practice Question

There are 253 practice questions for this study session.

CFA Practice Question

The bid/offer for the spot and forward points for the AUD/USD rates are:

Spot: 0.9639/0.9656
Six-month forward: 30/32

If you are selling the AUD six-month forward against USD, which rate should be used?
A. 0.9669.
B. 0.9688.
C. 0.9671.
Explanation: You should use the six-month ask rate: 0.9656 + 0.0032.

User Contributed Comments 7

User Comment
jpowers Selling at bid.
leftcoast If the currency is listed as AUS/USD, in order to sell AUS and buy USD, you're going to be using the offer rate.
blink78597 what happend to Down the Ask and Divide? Moving from AUD to USD, use the ask/offer.
rleewilson The curriculum states on pg 490 that "To sell GBP (the base currency in the AUD/GBP quote), we will be calculating the bid side of the market." So I'm not sure why selling at the offer here.
AlbertVall It's a little confusing but I hope to ease it. The problem is determining the currency. In fact, when we want to sell we use the bid price for the BASE currency. The problem says we want to sell the PRICE CURRENCY (AUD) so we have to use the ask price.
daverco Or remember you'll always get the worst rate. If you sell AUD, you'll get USD, and you'll get the least USD for your AUDs. If you take the inverse of the exchange rates listed, you'll see the offer prices are lower in USD terms.
cminor Read carefully and remember that selling the price currency (as is the case here) is the same as buying the base currency, which is why you use the ask and its forward spread.
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