Using the following rates: spot GBP/CHF 2.3785-15 spot CHF/SEK 5.5975-85 3M GBP/SEK swap 725/690 What is the price for 3-month outright GBP/SEK?
A) 13.3860-13.4020
B) 13.2435-13.2615
C) 13.2412-13.2638
D) 13.2445-13.2605

Question

Quizplus · Accepted Answer

To calculate the outright rate, we can use the cross rate formula:
GBP/SEK = (GBP/CHF) x (CHF/SEK)

Taking the bid side of each rate:
GBP/CHF = 2.3785
CHF/SEK = 5.5975
Therefore, GBP/SEK = 2.3785 x 5.5975 = 13.3363

To calculate the 3M GBP/SEK outright rate, we use the 3M GBP/SEK swap points. The 3M GBP/SEK swap points are 725/690, which means the market is pricing in a premium for GBP over SEK.

We can calculate the 3M outright rate as follows:
Outright = Spot + Swap points/10,000 x (1+(360/T))
where T is the number of days in the underlying deposit rate period (we assume 360 days for simplicity).

Using the bid side of the rates, we get:
Spot GBP/SEK = 13.3363
Swap points = 690
T = 90 (since it is a 3-month swap rate)
Outright = 13.3363 + 0.0690 x (1 + (360/90)) = 13.2638

So the answer is C) 13.2412-13.2638 since the swap points imply a bid-ask spread on the outright rate, hence the answer can not be as narrow as A) or D), and the answer can't be as wide as B).

Using the Following Rates: Spot GBP/CHF 2