Suppose that the 1-year forward rate of dollar per peso is $11.25,the current spot rate $/peso is $10.00,and the expected future spot rate $/peso is $11.50.The forward premium on the peso is:
A) -2.5%
B) 12.5%
C) 15%
D) 22.75%

Question

Quizplus · Accepted Answer

The forward premium on the peso is calculated as follows:

Forward premium = (Forward rate - Spot rate) / Spot rate x 100

= ($11.25 - $10.00) / $10.00 x 100

= $1.25 / $10.00 x 100

= 12.5%

Therefore, the answer is B) 12.5%.

Suppose That the 1-Year Forward Rate of Dollar Per Peso