Foreign Exchange
Market:
Chapter 7
Chapter Objectives
& Lecture Notes
FINA 5500
Chapter Objectives: FINA 5500
Chapter 7 / FX Markets
1.
To be able to interpret direct and indirect quotes in the spot market for foreign currencies
published in the financial press
2.
To be able to use direct and indirect quotes in the spot market to convert a given amount
of one currency into another currency
3.
To be able to estimate the percentage appreciation and depreciation of foreign currencies
based on direct and indirect quotes in the spot market
4.
To be able to estimate the percentage appreciation and depreciation of the US dollar
(from the foreign country’s view point) based on direct and indirect quotes
5.
To be able to compute a currency’s bid-ask spread, based on its bid and ask quotes in the
spot market
6.
To be able to calculate the dollar cost of making a round trip transaction based on its bid
and ask quotes in the spot market
7.
To be able to identify and exploit a locational arbitrage opportunity in the FX market
8.
To be able to estimate the cross-exchange rates (and bid-ask quotes) between two
currencies based their respective direct and indirect (and bid-ask) quotes in the spot
market
9.
To be able to identify and exploit a triangular arbitrage opportunity in the FX market
10.
To be able to explain in your own words, the rational for the forward market for foreign
currencies
11.
To be able to interpret direct and indirect quotes in the forward market for foreign
currencies published in the financial press
12.
Based on direct and indirect quotes in the forward market for foreign currencies, you
should be able to calculate the dollar values of the long and short positions taken in the
forward market, as well as profit or loss from taking these positions
13.
To be able to compare and contrast the role of a hedger and a speculator in the forward
market for foreign currencies
14.
To be able to estimate the annualized forward premium or discount
OVERVIEW: CHAPTER 7
z
Spot Market for Foreign Exchange
» Market characteristics
» Interpreting quotes
» Cross exchange rates
z
Forward Market for Foreign Exchange
» Why is it used
» Market characteristics
» Estimating forward premium and discount
1
Spot Market
z
z
z
z
z
z
Transactions at the same point in time.
The market is a network
Large money center banks are wholesalers
Major currencies: US $; Yen ; Euros; Swiss Francs;
Australian $; Canadian $
Spot Rate : The price at which a foreign currency can
be bought/sold, today.
Each spot exchange rate can be expressed in two
ways:
» Direct quote: price of the foreign currency expressed in
units of the home currency (example: 1BP = USD 2.00)
» Indirect quote: price of one unit of the home currency
expressed in units of the foreign currency (example: 1USD =
BP 0.50)
2
1
FX Price Quote
Source: http://finance.yahoo.com/currency
3
Spot Foreign Exchange Quotes
z
Direct Quote: U.S.
US
dollar equivalent
»
Online Quotes
z
Indirect Quote: Currency
per USD
»
1 BP = $1.8845
1 SF = $0.8393
»
Direct quote = 1 / Indirect
quote
1 BP = 1 / 0.5306 = $1.8845
1 SF = 1 / 1.1914 = $0.8393
Online Quotes
1 USD = BP0.5306
1 USD = SF1.1914
»
Indirect quote = 1 / Direct
quote
1 USD = 1 / 1.8845 = BP0.5306
1 USD = 1 / 0.8393 = SF1.1914
4
2
Applying Direct and Indirect
Quotes to Convert Currency
Currency Conversion Formulas:
Converting USD into FC Converting FC into USD
Using DQ USD / DQ = FC
FC * DQ = USD
Using IQ USD * IQ = FC
FC / IQ = USD
DQ = Direct quote
IQ = Indirect quote
USD = US Dollars
FC = Foreign currency
5
Bid and Ask Quotes and Spread
z
Ask Quote (currency dealer
dealer’ss selling price)
»
z
Bid Quote (currency dealer’s buying price)
»
z
z
z
$ 1.8845 / 1 British Pound.
$ 1.8820 / 1 British Pound.
Ask price > Bid price
Bid A k Q
Bid-Ask
Quotes:
t $1
$1.8820-45
8820 45 or jjustt 20
20-45
45
Bid-Ask Spread (in %) = 100 * (Ask - Bid) / Ask
»
100 * (1.8845 - $ 1.8820) / 1.8845 = 0.1327%
6
3
Indirect Price Quotes (Foreign Currency / USD)
Symbol
Currency
Close
Bid
Ask
USDJPY
Yen
103.67
103.67
103.70
USDEUR
Euro
0.7672
0.7672
0.7675
USDGBP
British Pound
0.5306
0.5306
0.5308
USDMXN
Mexican Peso
11.135
11.135
11.145
USDCHF
Swiss Franc
1.1931
1.1931
1.1936
7
Long-term FX Rates: USD & Yen (Indirect Quote)
8
4
Long-term FX Rates: USD & Euro (Direct Quote)
9
Long-term FX Rates: USD with Major Currencies
Source: http://research.stlouisfed.org/fred2
10
5
Percentage Change: Direct Quotes
Formula: % change in DQ = 100*(DQ1– DQ0) / DQ0
DQ0 = Direct quote
quote, at the beginning of the period
DQ1 = Direct quote, at the end of the period
Interpretation: Measures appreciation or depreciation of the
foreign currency, in terms of the USD. As seen from the US
viewpoint
Example: On 1/1/X1 the DQ for SF was $0.50, on 1/1/X2 it
was $0.60, and on 1/1/X3 it was $0.57
Period
Percentage Change in DQ
20X1 - 20X2 100*(0.60-0.50) / 0.50 = 20.00%
20X2 - 20X3 100*(0.57-0.60) / 0.60 = - 5.00 %
Interpretation
SF appreciated by 20%
SF depreciated by 5%
11
Percentage Change: Indirect Quotes
Formula: % change in IQ = 100*(IQ1 – IQ0) / IQ0
IQ0
Q0 = Indirect
d ec quo
quote,
e, a
at the
e beg
beginning
go
of the
e pe
period
od
IQ1 = indirect quote, at the end of the period
Interpretation: Measures appreciation or depreciation of the
USD, in terms of the foreign currency. As seen from the
foreign country’s viewpoint
Example: On 1/1/X1 the IQ for MP was 10.00, on 1/1/X2 it
was 9.00, and on 1/1/X3 it was 11.25
Period
Percentage Change in IQ
Interpretation
20X1 - 20X2 100*(9.00-10.00) / 10.00= -10.00% USD depreciated by 10%
20X2 - 20X3 100*(11.25-9.00) / 9.00= 25.00% USD appreciated by 25%
12
6
Percentage Change in Direct Quotes:
Using Indirect Quotes
% change in DQ =
100*[100 / (100 + % change
h
in
i IQ) - 1]
Example: Suppose, on 1/1/X1 the IQ for JY was 120, and on
1/1/X2 it was 100. It means that during this period, USD
depreciated by 20% from the Japanese viewpoint. What
was the % change in the value of JY from the US viewpoint?
Solution: During the 20X1-X2, IQ for JY changed by – 20%
Percentage in DQ (over the same period):
100* [100 / (100 – 20) – 1] = 100* [(100/80) – 1] = + 25%
During this period, JY appreciated by 25% (from US view
point)
13
Percentage Change in Indirect Quotes:
Using Direct Quotes
% change in IQ =
100*[100 / (100 + % change
h
in
i DQ) - 1]
Example: Suppose, on 1/1/X1 the DQ for SF was $0.50, and
on 1/1/X2 it was $0.55. It means that during this period, SF
appreciated by 10% from the US viewpoint. What was the
% change in the value of USD from the Swiss viewpoint?
Solution: During 20X1-X2, DQ for SF changed by + 10%
Percentage in IQ (over the same period):
100* [100 / (100 + 10) – 1] = 100* [(100/110) – 1] = - 9.09%
During this period, USD depreciated by 9.09% from the Swiss
viewpoint
14
7
Cross Exchange Rates Quotes
z
Deriving the exchange rates between two
currencies from their respective direct quotes
» Example: Use the direct dollar quotes for SF and BP to
calculate:
– how many SF per BP
– how many BP per SF
» Direct dollar quotes: (SF= $ 0.8393, BP = $ 1.8845)
» Cross exchange rates:
– The price of BP in terms of SF = (DQ of BP / DQ of SF)
z (1.8845 / 0.8393) = SF 2.2453 / BP
z One BP = SF 2.2453
– The price of SF in terms of BP = (DQ of SF / DQ of BP)
z (0.8393 / 1.8845) = BP 0.4454 / SF
z One SF = BP 0.4454
15
Cross Exchange Rates Quotes:With
Bid and Ask Quotes
z
Direct dollar quotes:
»
For Swiss Francs:
– Bid price: $ 0.6805
– Ask price: $ 0.6839
– Quote: $0.6805-39
»
For Hong Kong Dollar:
– Bid price = $ 0.1291
– Ask Price = $0.1331
– Quote: $0
$0.1291-331
1291 331
z
Cross exchange rates: Find the direct bid-ask quote
for Swiss Francs in Hong Kong, stated in HK $
16
8
LOCATIONAL ARBITRAGE
z
Buy low in one location & sell high in another
l
location
ti
»
In the FX market
–
z
The buying price (ask price) in one bank is lower than the
selling price (bid price) of another bank
Market adjustments which will eliminate
locational arbitrage
g
»
In the FX market:
–
–
The ask price will rise and bid price will fall
Till ask price (of one bank) is greater than or equal to bid
price (of another bank)
17
LOCATIONAL ARBITRAGE
PROFIT
z
Case 1: Arbitrage
Possible
z
Case 2: No
Arbitrage Possible
z
New York Bank Quotes
» Ask $1.84 / 1 BP
» Bid $1.81 / 1 BP
London Bank Q
Quotes
» Ask $1.89 / 1 BP
» Bid $1.86 / 1 BP
z
Chicago Bank Quotes
» Ask $0.64 / 1 SF
» Bid $0.60 / 1 SF
Berlin Bank Q
Quotes
» Ask $0.66 / 1 SF
» Bid $0.62 / 1 SF
z
z
18
9
Triangular Arbitrage: When Implied & Actual Cross
Rates are Different
1 BP = $1.50
$0.50
1 SF = $
Implied cross rate: 1 BP = 1.5/0.5 = 3.0 SF
If actual cross rate: 1 BP = 3.50 SF
(It is better to sell BP in return for SF)
If actual cross rate: 1 BP = 2.50 SF
(It is better to buy BP with SF)
$
BP
$
SF
BP
SF
19
Triangular Arbitrage: When Implied Cross
Rate is Less than Actual Cross Rate
1 BP = $1.50
1 SF = $
$0.50
Implied cross rate: 1 BP = 1.5/0.5 = 3.0 SF
If actual cross rate: 1 BP = 3.50 SF. Have $1,000
$ 1,000
BP 666.67
666.67 X 3.5
$1,166.67
SF 2,333.33
20
10
Triangular Arbitrage: When Implied Cross
Rate is Less than Actual Cross Rate
z
$ exchanged for BP
»
z
The price of BP falls against SF: (SF 3.50/BP
)
SF exchanged for $
»
z
)
BP exchanged for SF
»
z
The price of BP rises against the $: ($1.50 /BP
The price of SF falls against the $: ($ 0.50/SF
)
The implied
Th
i li d cross rate
t approaches
h the
th actual
t l cross
rate
21
Triangular Arbitrage: When Implied Cross
Rate is Greater than Actual Cross Rate
1 BP = $1.50
1 SF = $
$0.50
Implied cross rate: 1 BP = 1.5/0.5 = 3.0 SF
If actual cross rate: 1 BP = 2.50 SF. Have $1,000
$ 1,200
BP 800
2,000 / 2.5
$1,000
SF 2,000
22
11
Triangular Arbitrage: When Implied Cross
Rate is Greater than Actual Cross Rate
z
$ exchanged for SF
»
z
The price of BP rises against SF: (SF 2.50/BP
)
BP exchanged for $
»
z
)
SF exchanged for BP
»
z
The price of DM rises against the $: ($0.50 /SF
The price of BP falls against the $: ($ 1.50/BP
)
The implied
Th
i li d cross rate
t approaches
h the
th actual
t l cross
rate
23
Forward Currency Market
Market where Forward Contracts by traded
z Forward Contracts are agreements to deliver
(or take delivery of) a specified amount of
foreign currency at a fixed future date and at
a fixed exchange rate.
z Used by businesses and currency traders to:
z
Hedge against currency (exchange rate) risk
» Speculate (make trading profits)
»
24
12
Forward Exchange Rate
z
The dollar price at which a foreign
currency can be bought and sold at
future date. This rate is set at the time
when the contract is signed. No money
is exchanged at this time.
25
Forward Rate Quotes
z
Direct Dollar Quotes from WSJ (attached):
» Swiss Franc (FF)
– spot rate (direct quote): $0.8401
– 6-months forward rate (direct quote): $0.8492
» Japanese Yen (JY)
– spot rate (direct quote): $0.009646
– 6-months forward rate (direct quote): $0.009788
26
13
Using Forward Contracts
z
Two major applications of forward contracts:
» Hedging
» Speculation
27
Using Forward Contracts for
Hedging: Theory
z
Buy Forward Contracts (take a Long Position in the FM):
» When yyou expect
p
to make a p
payment
y
in Foreign
g currency,
y, at a
future date:
– You gain when the spot rate at the future date is higher than the
forward exchange rate
– You lose when the spot rate at the future date is lower than the
forward exchange rate
z
Sell Forward Contracts (take a Short Position in the FM):
» When you expect to receive a payment in Foreign currency,
currency at a
future date:
– You gain when the spot rate at the future date is lower than the
forward exchange rate
– You lose when the spot rate at the future date is higher than the
forward exchange rate
28
14
Using Forward Contracts for
Hedging: Examples
z
z
Toyota of Richardson, plans to buy 10 Lexus’
Lexus to
be delivered in 3 months. A Payment of JY 30
million needs to be made to Toyota in 6 months
Buy 6-month forward contract for 30 million JY
– How many $ will Toyota of Richardson need 6 months later ?
z
Aetna receives a bi-annual insurance p
premium of
1 million SF from a Swiss customer. The next
receipt is due in six months
» Sell 6-month forward contract for 1 million SF
– How many $ will Aetna receive 6 months later ?
29
Using Forward Contracts for
Speculation: Theory
z
Buy Forward Contracts (take a Long Position in the FM):
» When yyou expect
p
the future spot
p rate to be higher
g
then the
current forward rate:
– You will gain when the future spot rate is higher than the current
forward exchange rate
– You will lose when the future spot rate is lower than the current
forward exchange rate
z
Sell Forward Contracts (take a Short Position in the FM):
» When you expect the future spot rate to be lower then the current
forward rate:
– You will gain when the future spot rate is lower than the current
forward exchange rate
– You will lose when the future spot rate is higher than the current
forward exchange rate
30
15
Using Forward Contracts for
Speculation: Examples
z
Today, the 6-month forward rate on SF is $0.8492
» If you expect that 6-months from today
today, the spot rate of
SF will be greater than $0.8492:
– The you should BUY SF forward contracts
z
z
If 6-months latter, the SR for SF is $0.8495:
» you make (0.8495 – 0.8492) = $0.0003 / SF (profit)
If 6-months latter, the SR for SF is $ 0.8485:
» you make (0.8485 – 0.8492) = - $0.0007 / SF (loss)
» If you expectt that
th t 6-months
6
th from
f
today,
t d
the
th spott rate
t off
SF will be less than $0.8492:
– Then you should SELL SF forward contracts
z
z
If 6-months latter, the SR for SF is $0.8495:
» you make (0.8492 – 0.8495) = - $0.0003 / SF (loss)
If 6-months latter, the SR for SF is $0.8485:
» you make (0.8492 – 0.8485) = $0.0007 / SF (profit)
31
Forward Premium (or Discount)
z
Annualized % premium (discount)
» [(Forward - Spot) / Spot ] * [ 360/ Days to Maturity] * 100
z
180 day forward premium for Swiss Franc:
» [($0.8492 - $0.8401) / $0.8401 ] * [ 360/180] * 100 = 2.17 %
z
180 day forward premium for Japanese Yen:
» [($0.009788 - $0.009646) / $0.009646] * [ 360/180] * 100 = 2.94 %
32
16
Currency Conversion Problem Set #1
Please use the following quotes, to answer the questions listed below:
Currency
Quotes
Swiss francs
1 SF for $0.50
Mexican pesos
10 MP for 1 USD
British pounds
0.75 BP for 1 USD
Direct or Indirect ?
1. $3,000,000 can be converted into ______________ British pounds
2. SF 1,500,000 can be converted into ____________ USD
3. MP 600,000 can be converted into __________ Swiss francs
4a. How many SF does it take to buy 1 BP?
4b. How many BP does it take to buy 1 SF?
Currency Conversion Problem Set #2
1/1/X0
1/1/X1
BP quotes
$2.00 per BP
$2.18 per BP
SF quotes
SF 2.50 per USD SF 2.00 per USD
JY quotes
JY100 per USD
JY 120 per USD
For the time period: 1/1/X0 - 1/1/X1, please calculate:
1. The percentage appreciation / depreciation of BP in terms of the USD
2. The percentage appreciation / depreciation of USD in terms of SF
3. The percentage appreciation / depreciation of JY from the US viewpoint
4. Suppose during this time period the indirect quote for MP decreased by 15%.
(i) By what % did the MP appreciate/depreciate from the US viewpoint?
(ii) By what % did the USD appreciate/depreciate from the Mexican viewpoint?
Currency Conversion Problem Set #3
Currency
Quotes on 1/1/X1
Quote on 1/1/X2
1 CD = $0.50
1 CD = $0.54
Swiss francs
SF 1.80 = 1 USD
SF 1.90 = 1 USD
Japanese yen
1 USD = JY 100
1 USD = JY 120
Canadian dollars
a. Based on the 1/1/X2 quote, convert 8,000,000 Canadian dollars into US dollars:
b. Based on the 1/1/X2 quotes, convert $25,000,000 into Swiss francs:
c. During the one-year period, what was the percentage appreciation / depreciation
of the Japanese yen from the US point of view ?
d. During the one-year period, what was the percentage appreciation / depreciation
of the US dollar from the Swiss point of view?
Bid-Ask Spread Problem Set #1
The following table presents bid and ask quotes for BP from currency dealers in
New York and London:
Currency Dealer in
New York
London
Bid Quote for BP
$ 1. 58
$ 1.65
Ask Quote for BP
$ 1. 68
$ 1.70
1. Assume that you dealt with the New York currency dealer only. You converted
$100,000 into pounds, and immediately afterwards sold the pounds for dollars.
Estimate the dollar amount you lost in this round trip transaction.
2. Assume that you dealt with the London currency dealer only. What is the
percentage bid-ask spread for this dealer?
3. Which dealer (s) would you buy from, and sell to ?
Cross Exchange Rates Quotes With Bid
and Ask Quotes: In-Class Exercise
•
Direct dollar quotes:
–
For Swiss Francs:
• Bid-Ask Quote: $0.5205-50
–
For Canadian Dollar:
• Bid-Ask Quote: $0.8510-95
•
Cross exchange rates: Find the direct bid-ask quote
for Canadian dollars, stated in Swiss Francs
1
EXAMPLE: FX FORWARD MARKET BASICS
Today: 1/1/XX
Spot Rate for BP = $1.50
6-Month Forward Rate for BP = $1.60
FC BUYER / LONG POSITION HOLDER:
6-Month Forward Contract for BP 1,000,000
Current Financial Obligations: None
Six Months Latter: 6/1/XX
Financial Obligations of Forward Contract Buyer:
Pay: 1.60 x 1,000,000 = $1,600,000
Receive: BP 1,000,000
Suppose on 6/1/XX
SR = $1.63
Then for BP 1,000,000
You have paid: $1,600,000
And it is worth: $1,630,000
Your profit/loss: $ 30,000
FC SELLER / SHORT POSITION HOLDER:
6-Month Forward Contract for BP 1,000,000
Current Financial Obligations: None
SR = $1.58
Then for BP 1,000,000
You have paid: $1,600,000
And it is worth: $1,580,000
Your profit/loss: - $ 20,000
Financial Obligations of Forward Contract Seller:
Pay: BP 1,000,000
Receive: 1.60 x 1,000,000 = $1,600,000
Suppose on 6/1/XX
SR = $1.63
Then for BP 1,000,000
You have received: $1,600,000
And it is worth: $1,630,000
Your profit/loss: - $ 30,000
SR = $1.58
Then for BP 1,000,000
You have received: $1,600,000
And it is worth: $1,580,000
Your profit/loss: $ 20,000
EXERCISE: FX FORWARD MARKET BASICS
Today: 1/1/XX
Spot Rate for Euro = $1.15
6-Month Forward Rate for E = $1.20
Six Months Latter: 6/1/XX
FC BUYER / LONG POSITION HOLDER:
6-Month Forward Contract for E 5,000,000
Current Financial Obligations:
Financial Obligations of Forward Contract Buyer:
Pay:
Receive:
Suppose on 6/1/XX
E = $1.13
Then for E 5,000,000
You have paid: $
And it is worth: $
Your profit/loss: $
FC SELLER / SHORT POSITION HOLDER:
6-Month Forward Contract for E 5,000,000
Current Financial Obligations:
E = $1.25
Then for E 5,000,000
You have paid: $
And it is worth: $
Your profit/loss: $
Financial Obligations of Forward Contract Seller:
Pay:
Receive:
Suppose on 6/1/XX
E = $1.13
Then for E 5,000,000
You have received: $
And it is worth: $
Your profit/loss: $
E = $1.25
Then for E 5,000,000
You have received: $
And it is worth: $
Your profit/loss: $
FX Spot / Forward Market Transactions Problem Set #1
Forward and Spot Prices Quotes for Foreign Currencies: From Wall Street Journal
Today: 01/15/XX (Wednesday)
1-month latter: 02/15/XX (Tuesday)
6-months latter: 07/15/XX (Monday)
1. Today (1/15/XX), you bought 100 million JY in the spot market from Credit Suisse First Boston (CSFB), and sold it back to CSFB one month latter:
Your cash flows today, are:
Your cash flows on 2/15/XX are:
Your profit/loss is:
CSFB’s cash flows today, are:
CSFB’s cash flows on 2/15/XX are:
CSFB’s profit/loss:
2. Today (1/15/XX), you bought a one-month forward contract for 100 million JY from Credit Suisse First Boston (CSFB) :
Your cash flows today, are:
Your cash flows on 2/15/XX are:
Your profit/loss (in the FM) is:
CSFB’s cash flows today, are:
CSFB’s cash flows on 2/15/XX are:
CSFB’s profit/loss (in the FM) is:
FX Spot / Forward Market Transactions Problem Set #1 (Contd.)
3. Today (1/15/XX), you sold a six-month forward contract for 100 million JY to Credit Suisse First Boston (CSFB) :
Your cash flows today, are:
Your cash flows on 7/15/XX are:
Your profit/loss (in the FM) is:
CSFB’s cash flows today, are:
CSFB’s cash flows on 7/15/XX are:
CSFB’s profit/loss (in the FM) is:
4. Today (1/15/XX), you bought a one-month forward contract for 1 million BP from Credit Suisse First Boston (CSFB) :
Your cash flows today, are:
Your cash flows on 2/15/XX are:
Your profit/loss (in the FM) is:
CSFB’s cash flows today, are:
CSFB’s cash flows on 2/15/XX are:
CSFB’s profit/loss (in the FM) is:
5. Today (1/15/XX), you sold a six-month forward contract for 10 million SF to Credit Suisse First Boston (CSFB) :
Your cash flow today, is:
Your cash flows on 7/15/XX is:
Your profit/loss (in the FM) is:
CSFB’s cash flow today, is:
CSFB’s cash flows on 7/15/XX is:
CSFB’s profit/loss (in the FM) is:
Formula: Currency Conversion
Quotes: DQ (direct quote): The dollar price of one unit of foreign currency (FC)
IQ (indirect quote): Number of units of FC per one dollar; DQ = 1 / IQ and IQ = 1 / DQ
DQ0 = DQ now; DQ1 = DQ 1-year later; IQ0 = IQ now; IQ1 = IQ 1-year later
Calculating Percentage Change in DQ and IQ:
% change in DQ = 100 * (DQ1 - DQ0) / DQ0 = 100*[100 / (100 + % change in IQ) - 1]
% change in IQ = 100 * (IQ1 - IQ0) / IQ0 = 100*[100 / (100 + % change in DQ) - 1
Currency Conversion:
Converting USD into FC
Converting FC into USD
Using DQ
USD / DQ = FC
FC * DQ = USD
Using IQ
USD * IQ = FC
FC / IQ = USD
Ask Price (A): The buying price for one unit of FC from the currency dealer;
Bid Price (B): The selling price for one unit of FC to the currency dealer;
Bid-Ask Spread = 100* (A – B) / A
Cross-Quotes: DQ1= $ price of FC1; DQ2 = $ price of FC2;
The price of FC1 in terms of FC2 (how many unit of FC2 does it take to buy one FC1) = DQ1 / DQ2
The price of FC2 in terms of FC1 (how many unit of FC1 does it take to buy one FC2) = DQ2 / DQ1
Forward Premium or Discount: [(forward rate – spot rate) / spot rate] * [360/days to maturity] * 100