3-month USD/CHF is quoted at 112/110. Interest rates in Switzerland are reduced but USD rates (which are higher) are unchanged. What would you expect the 3-month forward USD/CHF rate to be?
A) unchanged
B) 118/116
C) 109/107
D) 106/104

Question

Quizplus · Accepted Answer

A reduction in Swiss interest rates would make the CHF less attractive, leading to a depreciation of the CHF against the USD. This would result in a higher forward rate for USD/CHF, hence the forward rate would increase to 118/116.

3-Month USD/CHF Is Quoted at 112/110