Question

What two-sided prices can be constructed for the GBP/USD 3-month outright, given the following? The 6-month period is 183 days. (You may assume a year is 360 days) GBP/USD spot: 1.4120/26 GBP 6-month interest rate: 5.10/5.20% USD 6-month interest rate: 4.30/4.40

Answer 1

GBP/USD Spot: 1.4120/26

Given 6 month Interest rate per annum for GBP and USD respectively..,

We need to convert into 3 months Interest rate per annum for the calculation of 3 month outright rate.

GBP interest rates for 3 months..-

= 5.1%×(90/360)/5.2%×(90/360)

= 1.275/1.3%

USD interest rates for 3 months..:-

= 4.3%×(90/360)/4.4%×(90/360)

= 1.075%/1.1%

=> 3 month outright rate is calculated under:-

For bid rate :-

1GBP = USD 1.4120×1.01075/1.01275

= USD 1.409

= USD 1.41

For offer rate :-

1GBP = USD 1.4126×1.011/1.013

= USD 1.4099

= USD 1.41

3 month outright rate :-

GBP/USD 1.41/1.41