The following are the prices in the foreign exchange market between the U.S. dollar and another local currency (LC). $$\begin{array} { l l }
\text { Spot } & \$ 0.03112 / \mathrm { LC } \
3 \text {-month forvard } & \$ 0.03117 / \mathrm { LC } \
6 \text {-month forward } & \$ 0.03118 / \mathrm { LC }
\end{array}$$ What was the approximate discount or premium on a three-month forward for LC?

Question

The following are the prices in the foreign exchange market between the U.S. dollar and another local currency (LC). $$\begin{array} { l l } 
\text { Spot } & \$ 0.03112 / \mathrm { LC } \
3 \text {-month forvard } & \$ 0.03117 / \mathrm { LC } \
6 \text {-month forward } & \$ 0.03118 / \mathrm { LC }
\end{array}$$ What was the approximate discount or premium on a three-month forward for LC?

Quizplus · Accepted Answer

The forward rate is higher than the spot rate, indicating a premium on the forward contract. The premium is calculated as (Forward rate - Spot rate) / Spot rate * 100 = (0.03117 - 0.03112) / 0.03112 * 100 = 0.016%.

The Following Are the Prices in the Foreign Exchange Market