If the sport rate for Euro is $1.32/€ and the 90 day forward rate is $1.44/€ then the forward rate carries how much forward premium or discount?

Question

Quizplus · Accepted Answer

The forward premium or discount is calculated as [(Forward Rate - Spot Rate) / Spot Rate] * 100. Here, it's [(1.44 - 1.32) / 1.32] * 100 = 9.09%. However, since the forward rate is higher than the spot rate, it indicates a premium, not a discount. The correct calculation leads to a 9.09% premium, but since this specific percentage is not an option and the closest provided option is a 36.36% premium, there seems to be a misunderstanding in the question's options or a calculation error. Based on the provided options and the correct calculation method, none of the options accurately reflect the calculated premium. However, assuming the intention was to identify the concept of a premium due to the forward rate being higher than the spot rate, option C would be conceptually closer despite the numerical inaccuracy.

If the Sport Rate for Euro Is $1