Forward Exchange Rate USD/EUR
I am currently conduct a study for my International Business course. In doing so I must determine the 1 YR Forward Exchange Rate for the USD/EURO; however, I am having some trouble understanding the charts. How do I calculate the FER with the given information. I was told to take the 1 yr bid of 184.5 and divide it by 1000 then add that to the current bid of .93. What does that translate to? 1.1145 but how does that read?
0.93 is spot, 184.5 is your forward points (calculated from the interest rate differentials), and 1.1145 would be your outright
So they are expecting 1.1145 dollars to buy you one Euro?
I've noticed that sometimes academics will write USDEUR and mean EURUSD (as we say it in the markets), but the 0.93 throws me off.
For the purpose of answering your question, let's assume that in the spot market, you can buy one Euro for 0.93 USD. The one year EURUSD outright means that today you can agree to exchange 1.1145 dollars per Euro in one year. This DOES NOT mean that you're forecasting EURUSD to move from 0.93 to 1.1145 within a year. You are simply locking in an exchange rate of 1.1145 dollars per EUR today for your trade one year from today.
Does that make sense?
Yes now I understand. So the 1y forward on the EURUSD is 1.145 dollars for one euro. Is that what youre saying? Should I be listing how many USD one euro buys you?
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