Question

What is the forward premium or discount of the USD/EUR based on the 6-month forward maturity assuming a 360-day year?

	Spot	1-Month	2-Month	3-Month	6-Month
EUR/USD	1.0435/45	20/25	52/62	75/90	97/115

Answer 1

The spot bid and ask quotes for USD/EUR are 1.0435/45. These quotes mean that the bank buys euros with dollars spot at $1.0435/€, and the bank sells euros for dollars at $1.0445/€. Because the forward points at the 3-month maturity are 75/90, we know that we must add the points to get the outright forward bid and ask rates. Adding the points makes the bid-ask spread in the forward market larger than the bid-ask spread in the spot market. Consequently, the forward bid rate is $1.0435/€ + $0.0075/€ = $1.0510/€, and the forward ask quote is $1.0445/€ + $0.0090/€ = $1.0535/€.