1. **Problem Statement:** Calculate the outright forward quotes (bid, ask, spread) for 1 month, 3 months, and 6 months forward Swiss Francs (SF) against USD, and calculate the 6 months SF rate. 2. **Given Data:** - Spot bid rate: SF1.2575/$ - Spot ask rate: SF1.2585/$ - 1 month forward points: 10 to 15 - 3 months forward points: 14 to 22 - 6 months forward points: 20 to 30 - 6 months USD treasury rate: 4.2% (annualized) - 6 months SF treasury rate: 6.45% (annualized) 3. **Formula for outright forward rate:** $$\text{Forward rate} = \text{Spot rate} + \frac{\text{Forward points}}{10,000}$$ Forward points are usually quoted in pips (0.0001), so we divide by 10,000 to convert to exchange rate units. 4. **Calculate 1 month forward outright quotes:** - Bid forward rate = Spot bid + (bid forward points / 10,000) = 1.2575 + \frac{10}{10,000} = 1.2575 + 0.0010 = 1.2585 - Ask forward rate = Spot ask + (ask forward points / 10,000) = 1.2585 + \frac{15}{10,000} = 1.2585 + 0.0015 = 1.2600 - Spread = Ask forward - Bid forward = 1.2600 - 1.2585 = 0.0015 5. **Calculate 3 months forward outright quotes:** - Bid forward rate = 1.2575 + \frac{14}{10,000} = 1.2575 + 0.0014 = 1.2589 - Ask forward rate = 1.2585 + \frac{22}{10,000} = 1.2585 + 0.0022 = 1.2607 - Spread = 1.2607 - 1.2589 = 0.0018 6. **Calculate 6 months forward outright quotes:** - Bid forward rate = 1.2575 + \frac{20}{10,000} = 1.2575 + 0.0020 = 1.2595 - Ask forward rate = 1.2585 + \frac{30}{10,000} = 1.2585 + 0.0030 = 1.2615 - Spread = 1.2615 - 1.2595 = 0.0020 7. **Calculate the 6 months SF rate using interest rate parity:** The formula for forward rate using interest rate parity is: $$F = S \times \frac{1 + r_{domestic} \times t}{1 + r_{foreign} \times t}$$ Where: - $F$ = forward rate - $S$ = spot rate - $r_{domestic}$ = domestic interest rate (USD) = 4.2% annual = 0.042 - $r_{foreign}$ = foreign interest rate (SF) = 6.45% annual = 0.0645 - $t$ = time in years = 0.5 (6 months) Calculate midpoint spot rate: $$S = \frac{1.2575 + 1.2585}{2} = 1.2580$$ Calculate forward rate: $$F = 1.2580 \times \frac{1 + 0.042 \times 0.5}{1 + 0.0645 \times 0.5} = 1.2580 \times \frac{1 + 0.021}{1 + 0.03225} = 1.2580 \times \frac{1.021}{1.03225}$$ Calculate fraction: $$\frac{1.021}{1.03225} \approx 0.989$$ Calculate forward rate: $$F \approx 1.2580 \times 0.989 = 1.2445$$ Calculate 6 months SF rate $r_{SF}$ from the formula rearranged: $$F = S \times \frac{1 + r_{USD} \times t}{1 + r_{SF} \times t} \Rightarrow 1 + r_{SF} \times t = \frac{S \times (1 + r_{USD} \times t)}{F}$$ Plug in values: $$1 + r_{SF} \times 0.5 = \frac{1.2580 \times 1.021}{1.2445} = \frac{1.284}{1.2445} = 1.0319$$ Solve for $r_{SF}$: $$r_{SF} = \frac{1.0319 - 1}{0.5} = \frac{0.0319}{0.5} = 0.0638 = 6.38\%$$ **Final answers:** - 1 month forward bid: 1.2585, ask: 1.2600, spread: 0.0015 - 3 months forward bid: 1.2589, ask: 1.2607, spread: 0.0018 - 6 months forward bid: 1.2595, ask: 1.2615, spread: 0.0020 - 6 months SF rate: 6.38%