The spot $US/Euro exchange rate is $US1.3549/Euro.The 3-month forward rate is $US1.3595/Euro.What is the Euro's forward premium (or discount)on the U.S.dollar,expressed as an annual percentage?

Question

Quizplus · Accepted Answer

To calculate Euro's forward premium (or discount) on the U.S. dollar, we can use the following formula:

Forward premium/discount = (Forward rate - Spot rate) / Spot rate x (360 / Number of days in the forward period) x 100

In this case, the forward period is 3 months, which equals 90 days.

Forward premium/discount = ($1.3595 - $1.3549) / $1.3549 x (360 / 90) x 100 = 0.0139 x 4 x 100 = 1.4% premium

Therefore, the correct answer is (C) 1.4% premium.

The Spot $US/Euro Exchange Rate Is $US1