Consider the following spot and forward rate quotations for the Swiss franc: $$\begin{array} { l l l }
S ( \$ / S F r ) & = & 0.85 \
F _ { 1 } ( \$ / S F r ) & = 0.86 \
F _ { 2 } ( \$ / S F r ) & = 0.87 \
F _ { 3 } ( \$ / S F r ) & = 0.88
\end{array}$$ Calculate the three-month forward premium in American terms.Assume 30-day months and 360-day years.

Question

Consider the following spot and forward rate quotations for the Swiss franc: $$\begin{array} { l l l } 
S ( \$ / S F r ) & = & 0.85 \
F _ { 1 } ( \$ / S F r ) & = 0.86 \
F _ { 2 } ( \$ / S F r ) & = 0.87 \
F _ { 3 } ( \$ / S F r ) & = 0.88
\end{array}$$ Calculate the three-month forward premium in American terms.Assume 30-day months and 360-day years.

Quizplus · Accepted Answer

The three-month forward premium is calculated as $(F_1 - S) / S \times (360/90)$. Substituting the given values: $(0.86 - 0.85) / 0.85 \times 4 = 0.1412$.

Consider the Following Spot and Forward Rate Quotations for the Swiss