If the spot rate (in U.S. dollars) for Japanese yen is 0.00703 and the 180-day forward rate is 0.00717, then the yen is trading at an annualized forward ____ (round % to 2 decimals).

Question

Quizplus · Accepted Answer

To find the annualized forward premium or discount, we need to use the formula:

Forward Premium/Discount = [(Forward rate - Spot rate)/Spot rate] x (360/number of days in the forward contract)

Plugging in the given values, we get:

Forward Premium/Discount = [(0.00717 - 0.00703)/0.00703] x (360/180)
Forward Premium/Discount = (0.00198/0.00703) x 2
Forward Premium/Discount = 0.562 x 2
Forward Premium/Discount = 1.124

Therefore, the yen is trading at an annualized forward premium of 1.124 or 3.98% (rounded to 2 decimals).

The correct choice is B.

If the Spot Rate (In U