Hello, I was reading an article on Bloomberg about Saudi Riyals (SAR) vs USD. If you dont know it, the SAR is pegged to the USD, so there is no currency flucuation. It is pegged at SAR/USD 3.75. Some people have been scpeculating that Saudi Arabia will have to abandon its pegged currency because the Central Bank will soon run out of reserves to maintain the peg. So some people are expecting the SAR to devaluate vs USD. I know the formula to calculate the price and value of a forward. But I dont understand something in the article. Here is a quote from the article: “One-year forward contracts on the Saudi riyal quoted outside of the country jumped by the most since May 26 on Friday.”
My question is how can the forward price jump since the spot is fixed? The spot is pegged so there is no move. Is it because rates in Saudi Arabia increased relative to Libor? What do they mean in the article please? How can the price of the forward jump all of a sudden please? To Price or Value a SAR/USD forward, we should use Libor and the Saudi equivalent SAIBOR? Thank you