Forward and Spot rate

CFA Level I Economics
#1

Hi can somebody please help explain how to calculate the spot rate tto solve the following question? I know I need to derive it from the Fw/spot rate and interest rate equivalence but must be wrong in converting the 360 day rates to 90 day rates:
Here is the question: The JPY/AUD spot exchange rate is 82.42, the JPY interest rate is 0.15%, and the AUD interest rate is 4.95%. If the interest rates are quoted on the basis of a 360-day year, the 90-day forward points in JPY/AUD would be closest to:

  1. –377.0.
  2. –97.7.
  3. 98.9.
#2

−97.7 points.

You’re not calculating the spot rate; that’s given as JPY/AUD 82.42.

You need to calculate the forward rate, then subtract the spot rate from the forward rate.

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#3

Yes my mistake I mean the Fward rate: please would you mind detailing the calculation? I understand the mechanics of the arbitrage between interest rates and Forward/spot but I’m missing something because couldn’t get 81.443 as the forward rate
The forward points are 100 × ( F − S ) = 100 × (81.443 − 82.42) = 100 × (−0.977) = −97.7. Note that because the spot exchange rate is quoted with two decimal places, the forward points are scaled by 100.
Thanks a lot for your help!

#4

F = 82.42 * [1+(90/360)*0.0015] / [1 + (90/360) * 0.0495]
=82.42 * 1.000375 / 1.012375
= 81.443049

Superfluous sentence added because system. :unamused: :roll_eyes:

#5
F = 82.42\left[\frac{1 + 0.15\%\left(\dfrac{90}{360}\right)}{1 + 4.95\%\left(\dfrac{90}{360}\right)}\right] = 81.44305
#6

thanks a lot

#7

Thanks a lot!

#8

I used more decimal places!! :nerd_face:

#9

Mine’s prettier! :dancer:t2:

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