Assume the spot rate of the Swiss franc is $.62 and the one-year forward rate is $.66. The forward rate exhibits a ____ of ____.
A) premium; about 6%
B) discount; about 6%
C) discount; about 6.45%
D) premium; about 6.45%

Question

Quizplus · Accepted Answer

The forward rate is higher than the spot rate, indicating a premium. The premium is calculated as ((forward rate - spot rate)/spot rate) x 100, which in this case is ((0.66-0.62)/0.62) x 100 = 6.45%. Therefore, the correct answer is D.

Assume the Spot Rate of the Swiss Franc Is