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The foreign exchange department at Tokyo’s Daiwa Bank quoted the spot rate on the euro at...

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.)

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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

Feel free to ask in case of any query relating to this question      

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