The spot rate for the Singapore dollar is $.588. The 30-day forward rate is $.590. The forward rate contains an annualized ____ of ____%.

Question

Quizplus · Accepted Answer

The forward rate is higher than the spot rate, which means that the market expects the Singapore dollar to appreciate in the next 30 days. Therefore, the forward rate has a premium. The premium is equal to the difference between the forward rate and the spot rate, divided by the spot rate, and then annualized. 
Premium = (F1 - S)/S = ($.590 - $.588)/$.588 = $.002/$.588 = .0034 or 0.34%
Annualized premium = .0034 x (360/30) = .0408 or 4.08%

The Spot Rate for the Singapore Dollar Is