Question

1.) Consider the dollar-sterling exchange rate.                                   &

1.) Consider the dollar-sterling exchange rate.                   

                                        Bid                   Ask

Spot                             $1.4065             $1.4075

Forward Points

3-months                          50                         45

6-months                          60                         50

Is the dollar trading at a forward premium or discount?

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Answer #1
Forward points are in descending order, so it will be lessed from spot rate to calculate Forward rate
Spot rate for Sterling
3 months 6 months
Bid Ask Bid Ask
1 Pound = $1.4065 $1.4075 1 Pound = $1.4065 $1.4075
Forward points -$0.0050 -$0.0045 Forward points -$0.0060 -$0.0050
1 Pound $1.4015 $1.4030 1 Pound $1.4005 $1.4025
Dollar per pound has decreased over 3 months, also in 6 months. It means pound is at discount.
If One currency is at discount, Other currency is at premium.
So, Pound is at discount and Dollar is trading at forward premium.
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