CFA topic test Economics Tremblay

Could anyone explain me what they are doing on question nr 1?

Don’t get the following formula

The mid-market for CAD/USD is (1.2138 + 1.2259)/2 = 1.21985. The mid-market forward premium (discount) is calculated as:

That`s the formula you need to use when you are calculating a fwd. premium/discount.

Make sure to use the base currency in the denominator.

You multiply 3 parts here:

  1. Spot price (1st part of formula)

  2. Actual/360 divided by 1 + base interest rate x actual/360 (middle part of formula)

  3. Difference between interest rate of price ccy and base ccy (3rd part of formula)

Thats the problem when you rely only on schweser notes for a topic. I ve seen that in the cfa curriculum it’s explained.

But I think it’s the same as calculating the forward price and deduct from them the spot price. isn’t it?

I would say so! We are either dealing with a discount or a premium (i.e. spot price > fwd.price or spot price < fwd. price). I think this topic test refers to the % discount or premium though, so not just the fwd. points itself.