Table 11.4.Forward Exchange Rates

-Refer to Table 11.4.On Wednesday,the 30-day forward franc was selling at a:
A) 1 percent premium per annum against the dollar
B) 2 percent premium per annum against the dollar
C) 1 percent discount per annum against the dollar
D) 2 percent discount per annum against the dollar

Question

Table 11.4.Forward Exchange Rates
 
-Refer to Table 11.4.On Wednesday,the 30-day forward franc was selling at a:
A) 1 percent premium per annum against the dollar 
B) 2 percent premium per annum against the dollar 
C) 1 percent discount per annum against the dollar 
D) 2 percent discount per annum against the dollar

Quizplus · Accepted Answer

Based on Table 11.4, the 30-day forward franc is selling at 0.9750, which is lower than the spot rate of 0.9900. This indicates a discount of 1.52% ((0.9900-0.9750)/0.9900) against the dollar. Since this is a 30-day forward, we can annualize the discount rate by multiplying it with 12/30, which gives us approximately 0.61%. As the discount percentage is positive, it means franc is selling at discount, hence it will have a percent discount per annum against the dollar. Thus, the correct answer is (C) 1 percent discount per annum against the dollar.