The current U.S. dollar-yen spot rate is ¥125/$. If the 90-day forward exchange rate is ¥127/$ then the yen is at a forward premium.

Question

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A forward premium occurs when the forward exchange rate is higher than the spot rate for the base currency. In this case, the yen is at a forward discount because the forward rate (¥127/$) is higher than the spot rate (¥125/$), meaning the yen is expected to weaken against the dollar.

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