If a foreign currency is quoted in American terms (the direct quote)and the forward rate is greater than the spot rate, the foreign currency is selling at a ________.
A)forward premium
B)forward discount
C)backward discount
D)discounted premium

Question

Quizplus · Accepted Answer

A forward premium occurs when the forward rate is higher than the spot rate. In this case, the foreign currency is quoted in American terms, which means the price of the foreign currency is given in terms of US dollars. If the forward rate is higher than the spot rate, it means that the market expects the foreign currency to appreciate versus the US dollar. Therefore, buyers of the foreign currency are willing to pay a premium to lock in the exchange rate for a future date.

If a Foreign Currency Is Quoted in American Terms (The