Question
In: Finance
The spot rate for the Singapore dollar is £0.320 and the 30-day forward rate is £0.325....
The spot rate for the Singapore dollar is £0.320 and the 30-day forward rate is £0.325. At what discount or premium is Singapore dollar selling?
Solutions
Expert Solution
Solution:
Spot Rate: 1 Singapore dollar = 
.320
Forward Rate: 1 Singapore dollar =
.325
Hence
is depreciating and trading at discount, this can be understood as
at present we have to pay
.320 for $1 but at 1 month forward we have to pay
0.325 for $1 it means we have to pay more to buy $1 hence
is depreciating.
Annualised depreciation on
= [(Spot - Forward) *12 *100] /( Forward *n)
Annualised depreciation on
= [(0.320 - 0.325) *12 *100] /( 0.325 *1)
Annualised depreciation on
= [( - 0.005) *12 *100] /( 0.325 *1)
Annualised depreciation on
= 6 /0.325
Annualised depreciation on
= 18.46%
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