Question

	Spot Price	9 month forward basis point
MYR/USD	4.3100/4.3250	22/250

What is the forward premium or discount of the MYR/USD based on the 9-month forward maturity assuming a 360-day year?

Answer 1

Forward premium is a situation where the forward or expected future price for a currency is greater than the spot price. It is an indication by the market that the current domestic exchange rate is going to increase against the other currency. A forward premium is generally measured as the difference between the current spot rate and the forward rate, so it is reasonable to assume that the future spot rate will be equal to the current futures rate.

Based on the given data of currency between MYR / USD, the Forward rates are first calculated and further using the same, forward premium is computed:

	Spot Price	9 month forward basis points	Forward Exchange Rate
	Bid / Ask
MYR / USD	4.3100 / 4.3250	22 / 250	4.3122 / 4.3500

Formula for computing Forward Premium = ((Forward rate - Spot price)/Spot Price) * (Requried period (360))/ (Given period forward (9 months or 270 days)) * 100%.

Annualised Forward Premium
Bid	((4.3122-4.3100)/4.3100)*(360/270)*100%
	0.068%
Ask	((4.3500-4.3250)/4.3250)*(360/270)*100%
	0.771%