FX Question

The spot CHF/GBP exchange rate is 1.3050. In the 180-day forward market, the CHF is at a forward premium of 42.5 points to the GBP. The 180-day forward CHF/GBP exchange rate is closest to:

A. 1.2625

B. 1.3008 Answer

C. 1.3093

Why is B the answer? Why did they subract the basis points? I would have added them. Please assist. Thanks.

Forward premium means CHF has increased in value as compared to GBP in 180 days

180 ago 1GBP was able to buy CHF1.3050 after 180 when CHF appreciated,GBP is able to buy less CHF in this case 1.3008

Thank you :slight_smile:

Dude keep it simple,

you even cant say that GBP has depreciated we even dont have price indexes and interest rate information regarding this.

just remember premium means appreciation, BUT DO SEE THE EXCHANGE RATE CONVENTIONS like in this case the convention is CHF/GBP

We say that the CHF has appreciated vs. the GBP, or the CHF has depreciated vs. the GBP to refer _ only to the exchange rate _. This has nothing to do with PPP. We’re using CHF to buy GBP; we’re not using CHF to buy scones and bumbershoots.