Reading 18: Currency Exchange Rates-LOS g习题精选 domestic, discount, interpret, 2010, class

土豆妮

Session 4: Economics: Economics for Valuation
Reading 18: Currency Exchange Rates

LOS g: Calculate and interpret a forward discount or premium and express it as an annualized rate.

 

 

 

The spot exchange rate is 2 D/F. The foreign return is 15% and the domestic return is 12%. What should the forward exchange rate be?

A) 1.948.

B) 0.487.

C) 2.576.

annyyu

re

luqian55

thanks

土豆妮

The 90-day $/Euro forward rate is 0.9420 $/Euro. Given a forward premium of 0.0027 $/Euro, what is the annualized percentage forward discount or premium for the Euro?

A) 1.150%.

B) 1.146%.

C) 11.500%.

---

Since we have a forward premium, we have to subtract it from the forward rate to get the spot rate of 0.9393 $/Euro. (Note that the $ is weaker in the forward market as it takes more dollars to buy one Euro.)

The annualized percentage forward premium = (0.0027 / 0.9393) × (360 / 90) × 100 = 1.150%

土豆妮

The spot and 30-day forward rates for the Australian dollar (AUD) are USD0.3075 and USD0.3120, respectively. The AUD is selling at a forward:

A) premium of USD0.0045.

B) rate of USD0.3075.

C) discount of USD0.0045.

土豆妮

The spot and 30-day forward rates for the Australian dollar (AUD) are USD0.3075 and USD0.3120, respectively. The AUD is selling at a forward:

A) premium of USD0.0045.

B) rate of USD0.3075.

C) discount of USD0.0045.

---

USD0.3120 – USD0.3075 = USD0.0045 premium.

土豆妮

Isaac Long is an English investor. He notices the 90–day forward rate for the Norwegian kroner is GBP0.0859 and the spot rate is GBP0.0887. Long calculates the annualized rate of the kroner to be trading at a:

A) discount of 12.63%.

B) premium of 9.478%.

C) premium of 21.17%.

---

[(forward rate ? spot rate) / spot rate] × (360 / number of forward contract days) = [(0.0859 ? 0.0887) / 0.0887] × (360 / 90) = ?0.1263 or ?12.63%.

土豆妮

Today, the spot rate on pounds sterling is $0.6960 and 90-day forward pounds are priced at $0.6925. The annualized forward discount is:

A) 2.022%.

B) 1.005%.

C) 2.012%.

土豆妮

Today, the spot rate on pounds sterling is $0.6960 and 90-day forward pounds are priced at $0.6925. The annualized forward discount is:

A) 2.022%.

B) 1.005%.

C) 2.012%.

---

Forward discount = ($0.6925 ? $0.6960) / $0.6960 × (360 / 90) = -0.02012

土豆妮

The 90-day $/Euro forward rate is 0.9420 $/Euro. Given a forward premium of 0.0027 $/Euro, what is the annualized percentage forward discount or premium for the Euro?

A) 1.150%.

B) 1.146%.

C) 11.500%.