Question

If the spot rate of the Israeli shekel is 5.76 shekels per dollar and the 180-day forward rate is 5.51 shekels per dollar, then the forward rate for the Israeli shekel is selling at a _______________ to the spot rate.

Answer choices:

4.34% premium

6.53% discount

7.71% premium

5.35% discount

Answer 1

Premium = $5.76 -$5.51 = 0.25

Percentage of premium = 0.25/5.76 x 100

= 4.34% premium

The correct answer is A

Step-by-step explanation:

This is an indirect quote in which dollar is fixed and shekels is variable. In order to obtain the 180-day forward rate, premium of $0.25 has been deducted. In indirect quote, premium is deducted from the spot rate in order to determine the forward rate ie $5.76 - $0.25 = $5.51. The percentage of premium is calculated as premium divided by spot rate multiplied by 100.