Question

2. The following data are taken from the financial market pages of an Australian newspaper.

Forward Margins

Forward Contract	Forward Margins (Buy A$/Sell A$)
1 month	0/1
2 month	1/2
3 month	1/3
6 month	2/4
1 year	0/1
2 years	-16/-8
3years	-51/-11

The data under the “Forward Margins” column represent the forward contracts for the US dollar with respect to the Australian dollar (given in points form).

(a) Using this data, and the bid-ask for spot USD at 0.7144 to 0.7145, compute the outright bid/ask rates for the following forward contracts:

(i) 1 month

(ii) 6 month

(iii) 2 years

(iv) 3 years

(b) Calculate the forward premium for the following contracts:

(i) 2 month

(ii) 3 month

(iii) 6 month

(iv) 1 year

Please, answer all parts (a and b ) and step by step and in a very clear way

Answer 1