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 risk premium on the peso is:
A) -2.5%
B) 12.5%
C) 15%
D) 22.75%

Question

Quizplus · Accepted Answer

The risk premium is calculated as the difference between the forward rate and the expected future spot rate, divided by the expected future spot rate. Here, it is (($11.25 - $11.50) / $11.50) * 100 = -2.5%.

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