Suppose it is January 1, 1998 and spot pounds are selling at $while 90?day forward pounds are selling at $At the same time, DM spot and 90?day forward rates are $0.6138 and $0.6014, respectively. According to these quotes the
A) pound is selling at a 3.87% forward discount relative to the DM
B) pound is selling at a 2.37% forward premium relative to the DM
C) DM is selling at a 0.97% forward discount relative to the pound
D) DM is selling at a 1.54% forward premium relative to the pound

Question

Quizplus · Accepted Answer

The pound is selling at a forward discount relative to the DM because the forward rate for the pound is lower than the spot rate, indicating a depreciation. The percentage discount can be calculated using the formula: [(Spot Rate - Forward Rate) / Spot Rate] * 100.

Suppose It Is January 1, 1998 and Spot Pounds Are