You currently have €400,000 in currency available to your firm, sitting in a bank account in Europe, invested at short-term rates. You have a funding requirement of $480,000 for three months in the United States and wish to utilize your EUR funds to meet this funding requirement. You do not wish to take any foreign exchange risk on this transaction. The spot rate is S ($/€) = 1.2 $/ €; i€ =2% per year; i$=4% per year.

Calculate the forward rate for a FX swap, and describe the steps of the FX swap.

Answer rating: 100% (QA)

Solution The forward rate for a FX swap Spot rate x 1 i x t 1 i x t 12 x 1 4 x 312 1 2 x ... View the full answer