Assume the spot rate of a currency is $.37 and the 90-day forward rate is $.36. The forward rate of this currency exhibits a ____ of ____ on an annualized basis.
A) discount; 11.11%
B) premium; 11.11%
C) premium; 10.81%
D) discount; 10.81%

Question

Quizplus · Accepted Answer

Discount
$\begin{array} { l } 
= [ ( \mathrm { FR } - \mathrm { SR } ) / \mathrm { SR } ] \times ( 360 / 90 ) \
= \lceil ( \$ .36 - \$ .37 ) / \$ .37 \rceil \times ( 360 / 90 ) \
= - 10.81 \% ( \text { Discount } )
\end{array}$

Assume the Spot Rate of a Currency Is