The spot and 30-day forward rates for the Swiss franc are $0.9075 and $0.9120 respectively. The...

The spot and 30-day forward rates for the Swiss franc are $0.9075 and $0.9120

respectively. The Swiss franc is said to be selling at an annualized forward

Expert Solution

Solution :

The formula for calculating the annualized forward premium or forward discount for a given quote is

= [ ( Forward Rate – Spot rate ) / Spot Rate ] * 100 * ( 365 days / Period of quote )

As per the information given in the question we have

Spot rate of the Swiss Franc = $ 0.9075 ; 30 day Forward rate of the Swiss Franc = $ 0.9120

Period of the quote = 30 days ;

Applying the above information in the formula we have

= [ ( 0.9120 - 0.9075 ) / 0.9075 ] * 100 * ( 365 / 30 )

= [ 0.0045 / 0.9075 ] * 100 * 12.166667

= 0.004934 * 100 * 12.166667

= 6.003289 %

= 6.0033 %

Since the solution is positive the 30 day forward rate is at a premium of = 6.0033 %

Thus the Swiss franc is said to be selling at an annualized forward premium of 6.0033 %

jeff jeffy answered 2 years ago

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