The following are the prices in the foreign exchange market between the Canadian dollar and United States dollar (USD). $\begin{array} { l l }
\text { Spot } & \$ 0.02465 / \mathrm { LC } \
3 \text {-month forward } & \$ 0.02473 / \mathrm { LC } \
\text { 6-month forward } & \$ 0.02474 / \mathrm { LC }
\end{array}$ What was the discount or premium on 3-month forward and 6 month for United States dollars?

Question

The following are the prices in the foreign exchange market between the Canadian dollar and United States dollar (USD). $\begin{array} { l l } 
\text { Spot } & \$ 0.02465 / \mathrm { LC } \
3 \text {-month forward } & \$ 0.02473 / \mathrm { LC } \
\text { 6-month forward } & \$ 0.02474 / \mathrm { LC }
\end{array}$ What was the discount or premium on 3-month forward and 6 month for United States dollars?

Quizplus · Accepted Answer

The forward rates are higher than the spot rate, indicating a premium. The 3-month premium is calculated as $(0.02473 - 0.02465) / 0.02465 \times 4 \times 100\%$ and the 6-month premium as $(0.02474 - 0.02465) / 0.02465 \times 2 \times 100\%$.

The Following Are the Prices in the Foreign Exchange Market