Suppose spot USD/EUR = 1.1800, domestic US short rate rd = 2.00 percent (annual), euro short rate rf = 1.00 percent (annual), and you want a 90-day forward. Using actual/360 day count and t = 90/360, which currency will trade at a forward premium for the 90-day contract?
Explanation
Compute forward relation: since US rate > euro rate, F < S in USD/EUR convention, implying the euro trades at forward discount; chapter provides the formula and sign interpretation.
Other questions
Which market participant category is primarily responsible for providing two-sided price quotes to clients in the interbank FX market?
If the EUR/USD spot rate moves from 1.1700 to 1.2000, the euro has done which of the following relative to the US dollar (quote convention USD/EUR)?
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Which currency regime gives up independent monetary policy entirely by legally adopting another country's currency as its own?
If a country runs a persistent trade deficit, which of the following must be true in the balance of payments identity?
A central bank commits by law to exchange domestic currency at a fixed rate for a foreign anchor and fully backs the monetary base with that foreign asset. This arrangement is called:
Which FX instrument is constructed by simultaneously executing a spot and a forward transaction and is the largest component of FX turnover?
If USD/EUR spot = 1.2000 and USD/EUR 6-month forward = 1.2300, which currency is trading at a forward premium and why?
A US investor expects to receive 1,000,000 JPY in 3 months. Spot USD/JPY = 110.00. To hedge currency risk, the investor would:
Which quotation convention is used to describe the number of units of price currency that one unit of base currency will buy?
A small open economy imposes a per-unit import tariff that raises domestic price of an imported good from P* to Pt. According to the chapter, which two areas represent the deadweight losses in a standard supply-demand diagram?
Which city is identified in the chapter as the largest FX trading hub by volume?
A dealer quotes AUD/USD = 0.7000 (price currency/base currency). Which currency is the base currency and how many units of price currency buys one unit of base currency?
Which of these is an argument made in the chapter for why countries may restrict capital inflows?
Which of the following statements about purchasing power parity (PPP) is consistent with chapter 7?
Which of the following best describes a managed float (dirty float) regime as discussed in the chapter?
An FX quote is JPY/USD = 111.50. A bank quotes a bid/offer of 111.48 - 111.52. From the client's perspective, what will the client pay to buy 1 USD?
Which of the following best captures the chapter's discussion of why forward rates should not be interpreted as precise forecasts of future spot rates?
What is the practical effect on monetary policy independence when a country credibly fixes its exchange rate and allows full capital mobility, according to chapter 7?
Using the chapter's notation, if Sf/d = 0.8500, rd = 2.00% annually, rf = 5.00% annually, and you want the forward for one year, what is Ff/d approximately?
Which BIS-triennial-survey fact is cited in chapter 7 about the composition of FX turnover by product?
If USD/CHF spot = 0.9900 and expected one-year USD/CHF spot is 0.9866 (lower), what does chapter 7 say this implies about the dollar's expected movement vs the franc?
Which of the following best matches the chapter's description of a 'target zone' exchange arrangement?
Triangular arbitrage exists when:
Which of the following is a potential long-term cost of capital controls noted in the chapter?
You observe AUD/USD opened at 0.7400 and closes at 0.7720 the same day. Using USD price currency per AUD convention, approximately what is the intraday percentage change in the Australian dollar relative to the US dollar?
Which of the following best summarizes the chapter's guidance on central bank FX intervention in supposedly floating regimes?
Which counterparty category accounted for the largest share of FX flows between banks and clients in the BIS data cited in the chapter?
You have spot EUR/GBP = 0.8600 and GBP/USD = 1.3200. What is the implied EUR/USD cross-rate?
Which of the following most accurately reflects why forward points increase with maturity, all else equal?
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What is the main reason the chapter gives for why FX forward quotes are typically expressed in points rather than decimals for client readability?
Which of these statements about currency boards is consistent with the chapter?
A trader calculates a 6-month forward by taking spot 1.3000 and adding forward points +0.0026. How should the trader express the 6-month forward in standard non-yen decimal terms and in pip points?
Which of the following best captures why FX markets are important to purely domestic investors, according to the chapter?
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According to chapter 7, which currency pair among the following was one of the top five most-traded pairs by share in the BIS survey?
Which of the following capital control measures was described in chapter 7 as used historically (and notably by Malaysia in 1998)?
When quoting a non-yen currency pair to four decimal places, an FX dealer posts spot 1.3456 and three-month forward points +75. How should the three-month forward rate be reported in decimals?
If investors expect a currency to depreciate, chapter 7 suggests what immediate capital flow reaction is most likely?
Which of these best describes the chapter's explanation for why the yen is typically quoted to two decimal places while other major currencies use four decimals?
A nation wants to regain monetary independence after a period of high capital inflows that boosted its currency value. According to chapter 7, which policy move could help achieve this objective?
Which of the following is NOT listed in chapter 7 as a typical use of the FX market by participants?