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Assume you are a price maker. The AUD/USD and EUR/USD spot rates are 0.7556 and 1.1576 respectively. Their 2-month swap rates are -11 and +34 respectively. Determine the 2-month outright FEC rate for AUD/EUR. Select one: a. 1.5321 b. 0.6527 c. 0.6499 d. 1.5388

Question

Assume you are a price maker. The AUD/USD and EUR/USD spot rates are 0.7556 and 1.1576 respectively. Their 2-month swap rates are -11 and +34 respectively. Determine the 2-month outright FEC rate for AUD/EUR. Select one:

a. 1.5321

b. 0.6527

c. 0.6499

d. 1.5388

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Solution

To solve this problem, we need to follow these steps:

  1. First, we need to calculate the 2-month outright forward rates for AUD/USD and EUR/USD.

    The formula for calculating the outright forward rate is: Forward Rate = Spot Rate + Swap Points/10000

    For AUD/USD: Forward Rate = 0.7556 - 11/10000 = 0.7545 For EUR/USD: Forward Rate = 1.1576 + 34/10000 = 1.1580

  2. Next, we need to calculate the 2-month outright FEC rate for AUD/EUR.

    The formula for calculating the cross rate is: Cross Rate = Base Currency / Terms Currency

    So, AUD/EUR = AUD/USD / EUR/USD = 0.7545 / 1.1580 = 0.6520

Therefore, the closest answer is:

b. 0.6527

This problem has been solved

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