Assuming a flat yield curve in both currencies, when quoting a 1- to 2-month forward FX time option price in a currency pair trading at a discount to a customer:
A) you would take as bid rate the bid side of the 2-month forward and as offered rate the offered side of the 1-month forward
B) you would take as bid rate the offered side of the 2-month forward and as offered rate the bid side of the 1-month forward
C) you would take as bid rate the offered side of the 1-month forward and as offered rate the offered side of the 2-month forward
D) you would take as bid rate the bid side of the 1-month forward and as offered rate the bid side of the 2-month forward

Question

Quizplus · Accepted Answer

In a flat yield curve scenario, when quoting a forward FX time option for a currency pair trading at a discount, you would use the bid side of the longer-term forward (2-month) and the offered side of the shorter-term forward (1-month) to ensure the customer gets the best possible rate.

Assuming a Flat Yield Curve in Both Currencies, When Quoting