Question: . Compare the forward premium calculated above to the forecasts made by the expertsincluded in the FXstreet website. Is the direction the same? What factors
. Compare the forward premium calculated above to the forecasts made by the "experts"included in the FXstreet website. Is the direction the same? What factors do you think the analysts used to develop their own forecasts? Include the ACTUAL spot values for the pair one week and 1 month after the initial forecast. Which of the experts was closest to the actual value ?
| Forward Rates | ||||||
| https://www.investing.com/rates-bonds/forward-rates | ||||||
| Name | Bid | Ask | High | Low | Change | Time |
| USDCAD ON FWD | -0.313 | -0.163 | -0.05 | -0.18 | -0.263 | 22:05:00 |
| USDCAD TN FWD | -0.13 | -0.06 | -0.11 | -0.087 | -0.01 | 22:06:00 |
| USDCAD SN FWD | -0.12 | -0.06 | -0.12 | -0.06 | 0 | 22:00:00 |
| USDCAD SW FWD | -0.87 | -0.41 | -0.61 | -0.61 | -0.05 | 22:06:00 |
| USDCAD 2W FWD | -1.49 | -1.21 | -1.43 | -1.29 | -0.04 | 22:06:00 |
| USDCAD 3W FWD | -2.2 | -1.76 | -2.05 | -1.88 | 0.03 | 22:06:00 |
| USDCAD 1M FWD | -3.1 | -2.49 | -2.8 | -2.77 | -0.17 | 22:06:00 |
| USDCAD 2M FWD | -7.4 | -6.86 | -6.85 | -6.86 | -0.11 | 22:05:00 |
| USDCAD 3M FWD | -11.32 | -10.61 | -11.1 | -10.76 | -0.03 | 22:06:00 |
| USDCAD 4M FWD | -15.9 | -13.56 | -15.06 | -14.76 | -0.36 | 22:05:00 |
| USDCAD 5M FWD | -20.52 | -18.01 | -19.38 | -18.9 | -0.28 | 22:06:00 |
| USDCAD 6M FWD | -26.23 | -23.67 | -25.2 | -24 | -0.52 | 22:06:00 |
| USDCAD 7M FWD | -31.15 | -28.61 | -30.25 | -29.05 | -0.7 | 22:05:00 |
| USDCAD 8M FWD | -37.18 | -34.56 | -36 | -34.75 | -0.93 | 22:05:00 |
| USDCAD 9M FWD | -43.06 | -39.44 | -41.81 | -40.3 | -0.76 | 22:06:00 |
| USDCAD 10M FWD | -50.44 | -43.77 | -47.56 | -46.24 | -0.22 | 22:06:00 |
| USDCAD 11M FWD | -56.24 | -51.76 | -54.78 | -55.5 | 0.46 | 22:06:00 |
| USDCAD 1Y FWD | -63.72 | -59.25 | -61.43 | -59.52 | -0.94 | 22:06:00 |
| USDCAD 15M FWD | -84.42 | -78.13 | -82.5 | -78.77 | 2.71 | 22:05:00 |
| USDCAD 21M FWD | -130.66 | -120.59 | -123.5 | -120.72 | 3.6 | 22:06:00 |
| USDCAD 2Y FWD | -156.1 | -143.39 | -150 | -145 | -1.1 | 22:06:00 |
| USDCAD 3Y FWD | -263.5 | -218.5 | -263.3 | -218.5 | -0.3 | 22:02:00 |
| USDCAD 4Y FWD | -353 | -295 | -352.5 | -295 | 14.21 | 22:04:00 |
| USDCAD 5Y FWD | -430.5 | -355.5 | -430.5 | -356 | -37.5 | 22:06:00 |
| USDCAD 6Y FWD | -501 | -396 | -500 | -396 | 0 | 22:04:00 |
| USDCAD 7Y FWD | -526.04 | -406.04 | -526.04 | -406.04 | 0.78 | 22:03:00 |
| USDCAD 8Y FWD | -587 | -407 | -587 | -408 | 2 | 22:02:00 |
| USDCAD 9Y FWD | -610 | -380 | -610 | -381 | 2 | 22:02:00 |
| USDCAD 10Y FWD | -632.39 | -332.39 | -627 | -332.39 | 0.67 | 22:03:00 |
| USDCAD 12Y FWD | -712 | -112 | -711 | -114 | 1 | 22:06:00 |
| USDCAD 15Y FWD | -654 | 446 | 0 | 0 | 0 | 05/12 |
| USDCAD 20Y FWD | -923 | 577 | -921 | 577 | 2 | 22:06:00 |
| Basic information for this currency pair | USD/CAD | ||||||||
| Direct pair (Y/N) | N | ||||||||
| BId | Ask | ||||||||
| Indirect price (beginning) | 1.3022 | 1.3024 | |||||||
| Direct price (beginning) | 0.767813 | 0.767931 | 2/3/2017 | DC1 date | |||||
| Pip converter (100 or 10000) | |||||||||
| 10000 | |||||||||
| 1) Use the forward quotes for 12M to develop a one year numeric forecast for the direction of the pair | |||||||||
| USDCAD 1Y FWD | -63.72 | -59.25 | -61.43 | -59.52 | -0.94 | 22:06:00 | |||
| USD/CAD | 1.3022 | 1.3024 | |||||||
| Average fwd points (12M) | -61.485 | ||||||||
| Point adjustment factor | 10000 | ||||||||
| Avg spot | 2.6046 | 1.3023 | |||||||
| Avg forward | 2.5984515 | 1.2961515 | |||||||
| Forward premium/discount for primary currency | |||||||||
| S/F-1 | 0.24% | 0.47% | |||||||
| 2) Use the CME future market to develop a one-year forecast for the direction of the pair | |||||||||
| Month | Open | High | Low | Last | Change | Settle | Estimated Volume | Prior Day Open Interest | |
| MAR 17 | 0.76785 | 0.76995 | 0.7646 | 0.76805 | +.00040 | 0.76815 | 48595 | 113903 | |
| JUN 17 | 0.76835 | .77060B | 0.7658 | 0.7688 | +.00040 | 0.76895 | 260 | 2389 | |
| SEP 17 | 0.7707 | .77120B | .76760A | .76910A | +.00040 | 0.76985 | 7 | 480 | |
| DEC 17 | - | .77225B | .76900A | .77065A | +.00030 | 0.77085 | 0 | 961 | |
| MAR 18 | - | .77310B | .77090A | .77255A | +.00035 | 0.7721 | 0 | 15 | |
| JUN 18 | - | .77365B | - | .77365B | +.00030 | 0.7734 | 0 | 7 | |
| SEP 18 | - | - | - | - | +.00030 | 0.7747 | 0 | 4 | |
| DEC 18 | - | - | - | - | +.00025 | 0.776 | 0 | 2 | |
| The foreign currency is expected to move | 0.58% | 0.51% | |||||||
| 3)Use the LIBOR rates to develop a one year forecast for the direction of the pair | |||||||||
| 2/3/2017 | 2/2/2017 | 2/1/2017 | 1/31/2017 | 1/30/2017 | |||||
| USD LIBOR - 12 months | 1.71% | 1.71233 % | 1.71511 % | 1.71344 % | 1.72483 % | ||||
| Actual | Previous | Highest | Lowest | Dates | Unit | Frequency | |||
| CAD 3m | 0.96% | 0.96% | 8.95% | 0.43% | 1992 - 2017 | percent | Daily | ||
| Approximation Rh-Rf | 0.7534% | ||||||||
| Exact formula (1+Rh)/(1+Rf) - 1 | 0.7463% | ||||||||
| 4) Using the three forecasts, calculate the expected movement for the foreign currency and for the pair | |||||||||
| Three Forecasts | |||||||||
| Forward premium/discount | 0.24% | 0.47% | |||||||
| Futures expected movement | 0.58% | 0.51% | |||||||
| Interest rate effect | 0.746% | 0.746% | |||||||
| Average | 0.521% | 0.578% | |||||||
| In the following year, CAD is expected to move 0.5xx% against the USD. Given that the pair is indirect, the forecast for the USD/CAD pair is expected to move down. | |||||||||
| 5) Calculate the annual forward premium for the foreign currency using the following time intervals: 1 week, 2 weeks, 1 month, 2 months 3 months and 6 months. Identify the direction for the foreign currency and compare to the average forecast reported above | |||||||||
| Average | Days | F | F | annualised S/F - 1 | annualised S/F - 1 | ||||
| USDCAD SW FWD | -0.87 | -0.41 | -0.64 | 7 | 2.604536 | 1.302236 | -2571.37% | 0.68% | |
| USDCAD 2W FWD | -1.49 | -1.21 | -1.35 | 14 | 2.604465 | 1.302165 | -1285.65% | 1.43% | |
| USDCAD 1M FWD | -3.1 | -2.49 | -2.795 | 30 | 2.6043205 | 1.3020205 | -599.94% | 2.97% | |
| USDCAD 2M FWD | -7.4 | -6.86 | -7.13 | 60 | 2.603887 | 1.301587 | -299.92% | 7.57% | |
| USDCAD 3M FWD | -11.32 | -10.61 | -10.965 | 90 | 2.6035035 | 1.3012035 | -199.92% | 11.65% | |
| USDCAD 6M FWD | -26.23 | -23.67 | -24.95 | 180 | 2.602105 | 1.299805 | -99.90% | 26.56% | |
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