Question

The spot rate for the Canadian dollar is $0.988 per C$. The 30 day forward rate is $0.990 per C$. The forward rate for Canadian dollar contains an annualized ________________ of ________%.

a. discount; 2.42

b. premium; 2.42

c. discount; 4.12

d. premium; 4.12

Answer 1

Correct option is B.

The forward rate for Canadian dollar contains an annualized Premium of 2.42 %.

Spot rate = $0.988 per C$

forward rate = $0.990 per C$

Here,as forward rate is greater than spot rate, hence there is forward premium.

The annualized premium can be calculated as -

(Assuming 360 days in a year)

Solving this we get -

2.42 (approx)

Hence answer is B.

Hope it helps!