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CFA Level 2
Derivatives

Forward Contract Pricing for EUR/USD

Very Easy Forward Pricing And Valuation Currency Forwards

Suppose that you are a financial analyst tasked with pricing a forward contract for currency exchange between the Euro (EUR) and the US Dollar (USD). The current spot exchange rate is 1.10 USD/EUR, and the annual interest rate in the Eurozone is 2%, while in the United States, it is 1.5%. Using the Interest Rate Parity theorem, what would be the appropriate forward exchange rate for a one-year forward contract?

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