Question

Assume that the spot rate for May 10, 2018 (“today”) is $/€ = 1.1215,       Calculate the...

Assume that the spot rate for May 10, 2018 (“today”) is $/€ = 1.1215,      
Calculate the 30day, 90day, 180day (assume a 360day year) and for the dates shown below

the actual and annualized forward premium or discount (“f”in %) for the U.S. dollar compared to the euro

30day $/€ forward rate = 1.1944

90day $/€ forward rate = 1.198218

180day $/€ forward rate = 1.2048

$/€ forward rate on December 17, 2019 = 1.2054

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Homework Answers

Answer #1

since we need to calculate forward premium and discount for US $ ,the quote provided is indirect quote and needs to be converted

Forward premium /(discount ) =[1/spot rate- 1/Forward rate ]/1/spot rate

Annualized Forward premium/(discount) =Actual Forward premium /(discount )*n/360

Actual Annualized
30days

[1/1.1215 - 1/1.1944]/1/1.1215

.89166- .83724/.89166

.05442/.89166

.0610 or 6.10%

6.10*360/30

73.2%
90 days

[1/1.1215-1/ 1.198218]/1/1.1215

[.89166- .83457]/.89166

.05709/.89166

6.40%

6.40*360/90

25.6%
180 days

[1/1.1215-1/1.2048]/1/1.1215

[.89166- .83001]/.89166

.06165/.89166

.0691 or6 .91%

6.91*360/180

13.82%
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