Question

1. Forward-premium calculation: Suppose the direct 90 day forward quote for the Danish kroner in Frankfurt is given to you as EUR 0.2943 – 0.2957 / DKK and spot rate as EUR 0.2921 – 0.2948 / DKK. Based on the bid or ask rates, which currency is at a forward-premium with respect to the other currency? How much is this forward-premium? [Hint: Use either bid or ask rates] (6 points) a. Please type formula here: b. Please provide the reasoning for your answer: c. Calculate the forward-premium here:

Answer 1

Spot mid rate = (Bid rate + Ask rate) / 2

Spot mid rate = (0.2921 + 0.2948) / 2

Spot mid rate = EUR 0.29345 / DKK

90 day forward mid rate = (Bid rate + Ask rate) / 2

90 day forward mid rate = (0.2943 + 0.2957) / 2

90 day forward mid rate = EUR 0.295 / DKK

Forward premium = (90 day forward mid rate - Spot mid rate) / Spot mid rate

Forward premium = (0.295 - 0.29345) / 0.29345

Forward premium = 0.00528 or 0.528%

Annualized Forward premium = 0.528% * 4 = 2.11%

Danish kroner is trading it at forward premium of 0.528%

The value of the Danish Kroner has appreciated in Euros in the 90 day forward rate