RTP Forex Query

Final 857 views 2 replies

jagruti supekar

CA Final

335 Points Posted on 17 March 2010

In Q.2 & Q.3 of Revision Test Paper for May 2010 exam,Spot Rates & Forward Rates are given as follows:-

Spot Rate(Pound per Euro): 1.7820 + 0.0002

means Spot Rate(Pound per Euro): 1.7820/1.7822

One month forward rate(Pound per Euro): 1.7829 + 0.0003.

means Forward Rate(Pound per Euro): 1.7829/1.7832.

It's clear that this information is for finding Bid ask rates.My Ques. is that why both + & - signs are used here?As Ask rate is always more than Bid rate so only + sign should be used in above giving information of Q. to find out ask rate.

It's possible that I m overlooking any concept here.So, please clear me about the purpose of using minus sign in the Q.Or suggest about ignoring this minus sign, if there is no other concept here.

Thanks.

Replies (2)

Guest

If there is only one forward rate or spot rate and swap point then we can derive another by deciding appreciating or depreciating.

Basic Concepts:

1) If Direct quote is given:- offer swap point is greater than bid swap point , then swap point shall be added to spot rate to arrive at forward rate...

2) If Direct quote is given:- offer swap point is less then bid swap point , then swap point shall be deducted from spot rate to arrive at forward rate....

3) If Indirect quote is given:- offer swap point is greater than bid swap point , then swap point shall be deducted from spot rate to arrive at forward rate...

4) If Indirect quote is given:- offer swap point is less than bid swap point , then swap point shall be added to spot rate to arrive at forward rate...

Its can not directly added or deducted from forward rate or bid rate...just apply this concept & solve the que...

-/+ sign is indicate there may be addition or diduction in rate...but we can decide on above concept...