Question

1) On June 1, 2020, the Euro had a spot rate of .9098 per USD. The 3-month forward rate of the Euro was .9123 on that date. What is the Euro's forward premium or discount?

	A.	1.52% forward discount
	B.	1.52% forward premium
	C.	1.1% forward discount
	D.	1.1% forward premium

2)

On June 1, 2020, the Euro had a spot rate of .9098 per USD. The 6-month forward rate of the Euro was .9007 on that date. What is the forward premium or discount?

	A.	2% forward discount
	B.	2% forward premium
	C.	4% forward discount
	D.	4% forward premium

Answer 1

Q-1)

- Spot Rate = Euro 0.9098 per USD

3-month Forward rate = Euro 0.9123 per USD

Calculating Euro's forward premium or discount:-

Forward premium = [(Forward rate - Spot rate)/Spot rate]*(12 months/3months)*100

Forward premium = [(0.9123 - 0.9098)/0.9098]*(12 months/3months)*100

Forward premium = 1.10%

So, the Euro's forward premium is 1.10%

Option D

2)

- Spot Rate = Euro 0.9098 per USD

6-month Forward rate = Euro 0.9007 per USD

Calculating forward premium or discount:-

Forward premium = [(Forward rate - Spot rate)/Spot rate]*(12 months/6months)*100

Forward premium = [(0.9007 - 0.9098)/0.9098]*(12 months/6months)*100

Forward premium = -2%

So, the Forward Discount is 2%

Option A

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