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If the spot rate is €1 = £0.85, and the 30-day forward rate is €1 =...

If the spot rate is €1 = £0.85, and the 30-day forward rate is €1 = £0.87, the Euro is selling at a(n) ______ in the forward market.

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Answer #1

When the forward exchange rate of a currency is greater than the spot rate, it is said that a premium exists for that currency.

When the forward exchange rate of a currency is less than the spot rate, it is said that a discount exists for that currency.

Since it has given that when the spot rate is €1 = £0.85, and the 30-day forward rate is €1 = £0.87, It means forward rate is greater than the spot rate. Hence it can be said that the Euro is selling at a(n) premium in the forward market.

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