USD/CHF spot is quoted 0.8975-80 and 3-month swap points are quoted 18/15. What is the 3-month outright forward quote?

To derive an outright forward rate from spot quotes and swap points, market participants apply the standard rule based on the direction of swap points. The USD/CHF spot is 0.8975-0.8980 and 3-month swap points are 18/15. Because the swap points are quoted high-to-low (18 > 15), the forward points indicate that the base currency (USD) is trading at a discount. Therefore, the swap points must be subtracted from the spot rates. Subtracting 0.0018 from the spot bid (0.8975) gives a forward bid of 0.8957, and subtracting 0.0015 from the spot ask (0.8980) yields a forward ask of 0.8965. Thus, the outright forward quote is 0.8957-0.8965.

Option B is incorrect because it incorrectly adds the swap points to the spot rate instead of subtracting them.

Option C is incorrect because it reflects incorrect arithmetic and incorrectly applies swap point addition/subtraction.

Option D is incorrect because it subtracts incorrect point values, resulting in an inaccurate bid-ask spread.

1. ACI Financial Markets Association, ACI Dealing Certificate New Version (002-101) Syllabus, Domain 2: Foreign Exchange, Section 2.3 "Calculation of Outright Forward Rates".

2. Bekaert, G., & Hodrick, R., International Financial Management, 3rd Edition, Cambridge University Press, Chapter 3: "Forward Markets for Foreign Exchange". https://doi.org/10.1017/9781108236782

3. NYU Stern School of Business, International Financial Management, Lecture Notes on "Forward FX Quotes and Swap Point Arithmetic".