Question

The foreign exchange department at Tokyo’s Daiwa Bank quoted the spot rate on the euro at €0.007185/¥. The 90-day forward rate is quoted at a premium of 4.20 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.)

Forward rate €________________ /¥

Answer #1

Formula to calculate Forward premium | ||||||

Forward premium = ((Forward rate - Spot Rate)/Spot rate)*(360/n)*(100) | ||||||

Using the above formula we can calculate the forward rate | ||||||

Calculation of forward rate | ||||||

0.042 = ((Forward rate - 0.007185)/0.007185)*(360/90) | ||||||

0.042 = ((Forward rate - 0.007185)/0.007185)*400 | ||||||

0.042*0.007185 = (Forward rate - 0.007185)*4 | ||||||

0.000302 = 4Forward rate - 0.02874 | ||||||

4Forward rate = 0.02874+0.000302 | ||||||

4Forward rate = 0.029042 | ||||||

Forward rate = 0.007260 | ||||||

Forward rate Euro 0.007260/Yen |
||||||

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