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The JPY/AUD spot exchange rate is 82.42. The JPY interest rate is 0.15%, and the AUD interest rate is 4.95%. If the interest rates are quoted on the basis of a 360-day year, the 90-day forward points in JPY/AUD would be closest to:

A. –377.0
B. –97.7
C. 98.9

Answer :

Final answer:

The forward points for the JPY/AUD exchange rate over a 90-day period, given the interest rates and spot exchange rate, are approximated to be -97.7. This suggests the JPY is expected to depreciate relative to the AUD over this time.

Explanation:

The question is asking for the calculation of the expected 90-day forward points in JPY/AUD. The forward points can be calculated using the formula: Forward Points = Spot Exchange Rate x ((1 + foreign interest rate) / (1 + home interest rate) - 1) x (Days/360).

Substituting the given values into the formula; Spot rate = 82.42, JPY rate = 0.15% or 0.0015, AUD rate = 4.95% or 0.0495, we have Forward Points = 82.42 x ((1 + 0.0015) / (1 + 0.0495) - 1) x (90/360).

Doing the calculation, the forward points come out to be roughly -97.7, so the closest answer choice would be B. -97.7. The negative forward points indicate an expected depreciation of the JPY relative to the AUD over the 90-day period.

Learn more about Foreign Exchange Forward Points here:

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