Skip to content

Spot USD/INR is 60.5600/60.5700 and one month SWAP points are 600/700 then outright forward rate will be.

Spot USDINR is 60.560060.5700 and one month SWAP points are 600700 then outright forward rate will be.

Looking for the answer to the question below related to Financial Management ?

Spot USD/INR is 60.5600/60.5700 and one month SWAP points are 600/700 then outright forward rate will be.

 Options:

A. 60.6200/60.6400
B. 60.6400/60.6200
C. 61.1600/61.2700
D. 61.2700/61.1600

The Correct Answer Is:

  • A. 60.6200/60.6400

The correct answer is A. 60.6200/60.6400. To understand how this outright forward rate is derived, it’s crucial to have a clear understanding of spot rates, SWAP points, and how outright forward rates are calculated in the context of foreign exchange markets.

In the given information:

  1. Spot USD/INR Rate: 60.5600/60.5700
  2. One Month SWAP Points: 600/700

Let’s break down how the outright forward rate is calculated and then explain why the other options are not correct:

The spot exchange rate represents the current exchange rate for the U.S. Dollar (USD) against the Indian Rupee (INR). In this case, the spot USD/INR rate is 60.5600/60.5700, where 60.5600 is the bid price (the price at which you can sell USD and buy INR), and 60.5700 is the ask price (the price at which you can buy USD and sell INR).

The SWAP points represent the difference between the spot exchange rate and the outright forward exchange rate for a specific maturity. In this scenario, the one-month SWAP points are 600/700.

The first number (600) indicates the number of points the forward rate is expected to appreciate (strengthen) compared to the spot rate, and the second number (700) indicates the number of points the forward rate is expected to depreciate (weaken) compared to the spot rate.

Now, to calculate the outright forward rate:

  1. Start with the spot ask price (60.5700).
  2. Add the one-month SWAP points for appreciation (600 points).

So, the outright forward rate for buying USD and selling INR is calculated as follows:

60.5700 (Spot Ask) + 0.0600 (SWAP Points) = 60.6300

This means that one month from now, the expected outright forward rate for buying USD and selling INR is 60.6300. However, exchange rates are typically quoted with four decimal places, so the quote would be 60.6200 – 60.6400.

The first number (60.6200) is the bid price for the one-month outright forward USD/INR rate (the price at which you can sell USD and buy INR), and the second number (60.6400) is the ask price for the one-month outright forward USD/INR rate (the price at which you can buy USD and sell INR).

Now, let’s discuss why the other options are not correct:

B. 60.6400/60.6200:

This option presents an incorrect order for the outright forward rate, where the bid price is higher than the ask price. Outright forward rates should have the bid price lower than the ask price.

C. 61.1600/61.2700:

This option presents an outright forward rate with exchange rates significantly different from the given information. It does not align with the provided spot rate and SWAP points.

D. 61.2700/61.1600:

This option also presents an outright forward rate with exchange rates significantly different from the given information. It does not align with the provided spot rate and SWAP points.

In summary, the correct answer is A. 60.6200/60.6400, as it accurately represents the expected one-month outright forward USD/INR exchange rate based on the provided spot rate and SWAP points.

The other options present either incorrect order or outright forward rates with exchange rates that do not align with the given information. Understanding how to calculate outright forward rates and the impact of SWAP points is essential in the field of foreign exchange and finance.

Related Posts

Leave a Reply

Your email address will not be published. Required fields are marked *