Question

The foreign exchange department at Tokyo’s Daiwa Bank quoted the spot rate on the euro at €0.007215/¥. The 90-day forward rate is quoted at a premium of 4.60 percent on the euro. What is the 90-day forward rate? (Round answer to 6 decimal places, e.g. 15.251945. Use 360 days for calculation.)

Answer #1

**The forward rate is computed as shown
below:**

**Forward rate premium = [ ( Forward rate – Spot rate ) /
Spot rate ] x ( 360 / No. of days of forward )**

0.0460 = [ (Forward rate - €0.007215/¥ ) / €0.007215/¥ ] x (360 / 90)

0.0460 = [ (Forward rate - €0.007215/¥ ) / €0.007215/¥ ] x 4

0.0460 / 4 x €0.007215/¥ = Forward rate - €0.007215/¥

Forward rate = 0.0460 / 4 x €0.007215/¥ + €0.007215/¥

**Forward rate = 0.007298 Approximately**

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