The current U.S. dollar-yen spot rate is 85¥/$. If the 90-day forward exchange rate is 88 ¥/$ 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 (88 ¥/$) is higher than the spot rate (85 ¥/$), indicating the dollar is expected to strengthen against the yen.

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