You are quoted the following market rates: spot EUR/USD. 1.2250 3M (91-day) EUR 2.55% 3M (91-day) USD. 2.00% What is 3-month EUR/USD?
A) 1.2232
B) 1.2233
C) 1.2234
D) 1.2267

Question

Quizplus · Accepted Answer

To calculate the 3-month EUR/USD rate, we need to use the interest rate parity formula:
3-month EUR/USD = spot EUR/USD x (1 + 0.0255/4) / (1 + 0.02/4)
= 1.2250 x 1.006375 / 1.005 = 1.2233
Therefore, the correct answer is B.

You Are Quoted the Following Market Rates: Spot EUR/USD