UK int free rate: 4.17% Euro int free rate: 3.28% Spot Exchange Rate (GBP per EUR) = .6892
This type of exchange rate quoation is , and the arbitrage-free 244-day forward exchange rate (GBP per EUR) is closest to: a) Direct Quote, 0.6932 b) Direct Quote, 0.6852 c) Indirect Quote, 0.6932
The forward rate is 0.6892 × (1.0417/1.0328)^(244/365) = 0.6932.
It’s a direct quote for EUR and an indirect quote for GBP.
(When they ask if it’s direct or indirect, think of the currency as a commodity: oil. A direct quote for oil is 96.18/barrel; an indirect quote is 0.010397barrel/. Nobody quotes oil prices indirectly.)