Question

Given
            Bid                Ask
So = 1.2500    -   1.2575

oF90= 1.3500      1.3575

calculate the Forward premium (discount) on the dollar against the swiss francs
using ask price

Answer 1

Exchange rates:-

(Spot rate) 1 SF ( Swiss Francs ) = $1.2500 - $1.2575

( Forward rate ) 1 SF ( Swiss Francs ) = $1.3500 - $1.3575

To calculate the forward premium or discount we need to calculate exchange rate per dollar against Swiss francs.

Ask rate is always higher than bid rate. Hence to calculate the above mentioned rate we need to change the rates.

Spot rate = 1$ = (1 / 1.2575) - ( 1 / 1.2500)

= 1$ = SF 0.7952 - SF 0.80

Forward rate = 1$ = ( 1 / 1.3575 ) - ( 1 / 1.3500 )

= 1$ = SF 0.7366 - SF 0.7407

ASK EXCHANGE RATE

Spot rate = 1$ = SF 0.8000

Forward rate = 1$ = SF 0.7407

Premium / Discount = ( Forward rate - Spot rate ) / Spot rate

= ( 0.7407 - 0.8000 ) / 0.80000

= -7.41%

Dollar is discounted against the Swiss francs using ask price by 7.41%.