If the spot rate for the British pound is $1.5077 and the 180-day forward rate is $1.4934, what is the approximate annualized forward premium (discount)?

Question

Quizplus · Accepted Answer

First, we need to calculate the forward premium (or discount) by taking the difference between the forward rate and the spot rate:

Forward premium (or discount) = (180-day forward rate - spot rate) / spot rate

= ($1.4934 - $1.5077) / $1.5077

= -0.0094 or (-)0.94%

Then, we need to annualize this rate by multiplying it by the number of days in a year (365) divided by the number of days in the forward contract (180):

Annualized forward premium (or discount) = (-0.0094) x (365/180)

= (-)0.019 or discount of (-)1.90%

Therefore, the correct answer is C, discount of (-)1.90%.

If the Spot Rate for the British Pound Is $1