Suppose the selling price of one-month forward British pounds is $1.6036 per pound and the spot price of the pound is $1.6039.This means that there is an annual forward discount on the pound equal to 0.2 percent.

Question

Quizplus · Accepted Answer

The formula for calculating the annual forward discount or premium on a currency is:

[(Forward rate - Spot rate) / Spot rate] x (12 / Number of months in the contract)

In this case:

[(1.6036 - 1.6039) / 1.6039] x (12 / 1) = -0.002363 or -0.2363%

Since the result is negative, this means there is an annual forward discount on the pound equal to 0.2363%, which is less than 0.2% stated in the question. Therefore, the statement is false and the answer is A.

Suppose the Selling Price of One-Month Forward British Pounds Is