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) 2.012%.

C) 1.005%.

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

土豆妮

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

A) 1.146%.

B) 1.150%.

C) 11.500%.

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Since we have a forward premium, we have to subtract it from the forward rate to get the spot rate of EUR:USD 0.9393. (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 USD 0.3075 and USD 0.3120, respectively. The AUD is selling at a forward:

A) rate of USD 0.3075.

B) premium of USD 0.0045.

C) discount of USD 0.0045.

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USD 0.3120 – USD 0.3075 = USD 0.0045 premium.