Question 1
Multiple ChoiceIf the GBP/JPY spot exchange rate is 155.40, and the 90-day forward points are +80, the 90-day GBP/JPY forward rate is closest to:
Explanation
Step 1: Understand What the Numbers Mean
* Spot exchange rate: Current rate to exchange GBP for JPY → 155.40
* Forward points: Adjustment (in pips) to the spot rate to get the forward rate → +80
* Since this is GBP/JPY, the forward points are expressed in JPY pips (2 decimal places), so +80 = 0.80.
Step 2: Determine Whether to Add or Subtract
* Forward points are positive → this means JPY is expected to weaken, so add the points to the spot rate.
Step 3: Convert Forward Points to Decimal Format
* 80 points = 0.80
Step 4: Calculate the Forward Rate
Forward Rate = Spot Rate + Forward Points
Forward Rate = 155.40 + 0.80 = 156.20
Question 2
Multiple ChoiceIf the NZD/USD spot exchange rate is 0.6240 and the 30-day forward points are +15, the 30-day NZD/USD forward rate is closest to:
Explanation
Forward Rate = Spot Rate + (Forward Points × 0.0001)
(This formula applies when exchange rates are quoted to 4 decimal places and points are given in pips.)
Forward Rate = 0.6240 + (15 × 0.0001) = 0.6240 + 0.0015 = 0.6255
Question 3
Multiple ChoiceThe spot exchange rate between the British pound and the Australian dollar is 1.859 GBP/AUD. The 90-day forward points are +36. The 90-day forward rate is closest to:
Explanation
For three-decimal quotes, each point = 0.001.
Forward Rate = 1.859 + ( 36 × 0.001 ) = 1.895
Question 4
Multiple ChoiceGiven an exchange rate of USD/JPY 110.50 and USD/INR 82.00, what is the cross rate for JPY/INR?
Explanation
To find JPY/INR, we use:
JPY / INR = (USD/INR) / (USD/INR) = 82.00 / 110.50 = 0.7422
When both rates are quoted as USD/X, to get the cross rate A/B, just divide:
(USD/B) / (USD/A) = A / B
So:
USD/CHF ÷ USD/CAD = CAD/CHF
USD/INR ÷ USD/JPY = JPY/INR
USD/GBP ÷ USD/AUD = AUD/GBP
Question 5
Multiple ChoiceThe spot exchange rate between the British pound and the U.S. dollar is 1.4125 USD/GBP. The 60-day forward rate is quoted as −8.6 points. The forward exchange rate is closest to:
Explanation
Forward Rate = Spot Rate + (Forward Points × 0.0001)
(For quotes to four decimal places)
Forward Points = −8.6 × 0.0001 = −0.00086
Forward Rate = 1.4125 − 0.00086 = 1.41164
Question 6
Multiple ChoiceThe spot exchange rate between the Japanese yen and the U.S. dollar is 110 JPY/USD. The 30-day forward points are +20. The 30-day forward rate is closest to:
Explanation
For quotes with no decimals, each point equals 1 unit. So:
Forward Rate = 110 + 20 = 130
Question 7
Multiple ChoiceThe spot exchange rate between the euro and Swiss franc is 1.08 EUR/CHF. The 60-day forward points are −15. The 60-day forward rate is closest to:
Explanation
Formula Note:
For two-decimal quotes, each point = 0.01.
Forward Rate = 1.08 + ( −15 × 0.01 ) = 1.08 − 0.15 = 1.07
Question 8
Multiple ChoiceIf the current spot exchange rate for USD/EUR is greater than the no-arbitrage 6-month forward exchange rate, the 6-month euro (EUR) interest rate is:
Explanation
When the forward rate is lower than the spot rate, it means the foreign currency (EUR in this case) is expected to fall in value in the future.
This happens when interest rates in Europe (EUR) are higher than in the U.S. (USD). Investors prefer to earn more interest in euros, so they buy euros now—pushing up the spot rate—but they’ll want to lock in a forward contract to protect against EUR dropping later, which makes the forward rate lower.
➡️ So:
Spot > Forward → Foreign interest rate (EUR) > Domestic interest rate (USD)
Question 9
Multiple ChoiceThe spot exchange rate for CAD/USD is 0.7540, and the 1-year forward quotation is −0.265%. The 1-year forward exchange rate for USD/CAD is closest to:
Explanation
Step 1: Calculate the 1-year forward CAD/USD rate
Forward Rate (CAD/USD)=0.7540×(1−0.00265)=0.7540×0.99735=0.7520
Step 2: Invert to get USD/CAD forward rate
Forward Rate (USD / CAD) = 1 / 0.7520
Question 10
Multiple ChoiceIf the spot exchange rate between the euro and the U.S. dollar is EUR/USD 0.9200, and the spot exchange rate between the Australian dollar and the euro is AUD/EUR 1.6200, what is the USD/AUD spot cross exchange rate?
Explanation
Convert EUR/USD to USD/EUR:
1 / 0.9200 = 1.0870 (USD/EUR)
Now calculate USD/AUD using the cross-rate formula:
USD / AUD = ( USD/EUR ) / ( AUD/EUR ) = 1.0870 / 1.6200 = 0.6710