If the spot rate of the British pound is $2, and the 180-day forward rate is $2.05, what is the annualized premium or discount?
A)2.5 percent discount
B)2.5 percent premium
C)10 percent premium
D)5 percent discount
E)5 percent premium

Question

Quizplus · Accepted Answer

The annualized premium for the forward rate is calculated as ((Forward Rate - Spot Rate) / Spot Rate) * (360 / Number of days) = ((2.05 - 2) / 2) * (360 / 180) = 0.025 * 2 = 5 percent premium.

If the Spot Rate of the British Pound Is $2