Question

The usd/Eur spot exchange rate is 1.1760 and the 6 month forward points are 10 the forward exchange rate is
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Answer 1

Answer:

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Answer 2

GIVEN:

The usd/Eur spot exchange rate = 1.1760

The 6 month forward points = 10

TO FIND:

The forward exchange rate.

SOLUTION:

• The forward exchange rate is basically a rate pre determined between the bank and the customer along which the currency will be exchanged in the future.

Forward exchange rate = Spot exchange rate - Forward Points

Forward points are written as : 10/10,000

= 0.001

Forward exchange rate = 1.1760 - 0.001

= 1.175

• The exchange rates keep on fluctuating thus causing large impacts on monetary transactions, with forward exchange rate the loss can be controlled.

Thus, Forward exchange rate = 1.175