High School

If the AUD/CAD spot exchange rate is 0.9875 and 60-day forward points are -25, the 60-day AUD/CAD forward rate is closest to:

A) 0.9900.
B) 0.9850.
C) 1.0125.

Answer :

To calculate the 60-day forward rate for AUD/CAD using the given spot exchange rate and forward points, follow these steps:

  1. Understand the Terms:

    • Spot Exchange Rate: The current exchange rate at which one currency can be exchanged for another, which is given as 0.9875 for AUD/CAD.
    • Forward Points: The difference between the spot rate and forward rate, expressed in pips (smallest price movement) for a particular period, here being -25 points.

  2. Convert Forward Points to Decimal:

    • Forward points of -25 would be represented as [tex]-0.0025[/tex] since each point is 0.0001 in currency conversion.

  3. Calculate the Forward Rate:

    • The forward rate is calculated by adjusting the spot rate with the forward points.
    • Forward Rate = Spot Rate + Forward Points
    • So, Forward Rate = 0.9875 + (-0.0025) = 0.9850

Therefore, considering the calculations above, the closest forward rate is 0.9850.

Chosen Option: B) 0.9850

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