Assume you are a price maker. The AUD/USD and EUR/USD spot rates are 0.7546/50 and 1.1553/58 respectively. Your 3-month swap rates are 12/10 and 35/37 respectively. Determine your 3-month outright FEC bid rate for AUD/EUR, rounded to 4 decimal places.
Question
Assume you are a price maker. The AUD/USD and EUR/USD spot rates are 0.7546/50 and 1.1553/58 respectively. Your 3-month swap rates are 12/10 and 35/37 respectively. Determine your 3-month outright FEC bid rate for AUD/EUR, rounded to 4 decimal places.
Solution
To calculate the 3-month outright FEC bid rate for AUD/EUR, follow these steps:
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First, calculate the 3-month forward rates for AUD/USD and EUR/USD using the spot rates and swap rates.
For AUD/USD: Forward rate = Spot rate - Swap rate = 0.7546 - (12/10,000) = 0.7546 - 0.0012 = 0.7534
For EUR/USD: Forward rate = Spot rate + Swap rate = 1.1553 + (35/10,000) = 1.1553 + 0.0035 = 1.1588
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Next, calculate the 3-month outright FEC bid rate for AUD/EUR using the forward rates for AUD/USD and EUR/USD.
AUD/EUR = AUD/USD ÷ EUR/USD = 0.7534 ÷ 1.1588 = 0.6503
So, the 3-month outright FEC bid rate for AUD/EUR is 0.6503, rounded to four decimal places.
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