Forward premium: Bank of America quoted the 180-day forward rate on the Japanese yen at $0.009702/¥. The spot rate was quoted at $0.009466/¥. What is the forward premium or discount on the Japanese yen? Round off to the nearest per cent.

Question

Quizplus · Accepted Answer

To calculate the forward premium or discount, we can use the formula:

Forward premium/discount = (Forward rate – Spot rate) / Spot rate x 100

Plugging in the given values, we get:

Forward premium/discount = ($0.009702/¥ - $0.009466/¥) / $0.009466/¥ x 100
= 0.024836/ $0.009466/¥ x 100
= 2.62%

Since the forward rate is higher than the spot rate, we have a forward premium. Rounding off to the nearest percent, we get the answer as 5% premium.

Forward Premium: Bank of America Quoted the 180-Day Forward Rate