The annualized forward premium on the euro is 7%. What is the 90-day forward rate on the euro if the spot rate today is $1.25?
A) $1.27
B) $1.34
C) $1.16
D) $1.23

Question

Quizplus · Accepted Answer

The annualized forward premium is 7%, so for 90 days (which is 1/4 of a year), the forward premium is 7%/4 = 1.75%. The forward rate is calculated as: Spot rate * (1 + forward premium) = $1.25 * (1 + 0.0175) = $1.27.

The Annualized Forward Premium on the Euro Is 7