Question

Forward premium:

a) The current price of a pound in Toronto is 1.2345. The 30 days price of the pound in Toronto's forward market is 1.1357. What is the annualized forward premium for Canarian dollars?

b) Spot and 60 days forward dollar indirect quotes for yen are 100.2468 and 101.0305. What is the annualized dollar forward premium?

Answer 1

Annualized rate = [ [ Fwd rate - Spot rate ] / Spot rate ] * 365 / 90 * 100

Pound / CAD :

Spot rate = 1 / 1.2345

= 0.8100

Fwd rate = 1 / 1.1357

= 0.8805

= [ [ Fwd rate - Spot rate ] / Spot rate ] * 365 / 30 * 100

= [ [ 0.8805 - 0.8100 ] / 0.8100 ] * (365 / 30 )* 100

= [ 0.0705 / 0.8100 ] * 365 / 30 * 100

= 0.0870 * 365 / 30 *100

= 1.0590 * 100

= 105.90%

Part B:

= [ [ Fwd rate - Spot rate ] / Spot rate ] * 365 / 60 * 100

= [ [ 101.0305 - 100.2468 ] / 100.2468 ] * (365 / 60 )* 100

= [ 0.7837 / 100.2468 ] * 365 / 60 * 100

= 0.0078 * 365 / 60  *100

= 0.0476 * 100

= 4.76%

Pls do rate, if the answer is correct and comment, if any further assistance is required.

= 105.90%