[flop310]

Can someone please explain to me this question:

Assume that the three-month forward rate for the euro is $1.367 and the spot rate is $1.364. What is the forward premium or discount on the euro?

a. .88% premium

b. .88% discount

c. .23% premium

d. .23% discount

The answer is A

I am not sure how to figure it out.

Thank you!

[no.cruncher]

Premium or Discount = ( Forward Rate – Spot Rate / Spot Rate ) x ( Months (or Days) in Year / Months (or Days) in Forward Period )

0.88% Premium = ( $1.367 – $1.364 / $1.364 ) x 3 Mo. / 12 Mo.

https://books.google.com/books?id=GCHSUjWFbT0C&pg=PT294&dq=Assume+that+the+three-month+forward+rate+for+the+euro+is+$1.367+and+the+spot+rate+is+$1.364.+What+is+the+forward+premium+or+discount+on+the+euro?&hl=en&sa=X&ei=JhY1Ud2nDobq9ASrsIGwBA&ved=0CDcQ6AEwAQ

FAR - 7/16/2012 *76 : 2.5mo [Exp. 1/2014]
AUD - 8/31/2012 *82 : 1mo
REG - 11/27/2012 *83 : 2.5mo
BEC - 2/27/2013 *80 : 2.5mo LET'S DO THIS!!!
Ethics - 3/13

[ 2011 Kaplan Self Study - Textbook, MP3s, FlashCards ]

CMA... Hmmm...???

[flop310]

Got it. Thanks a lot!

[Author]

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