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Suppose the one-year forward $/ϵ exchange rate is $1.2 per euro and the spot exchange rate is $1.6 per euro. What is the forward premium on euros (the forward discount on dollars)? The forward premium on euros is ___ percent.

User KanUXD
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The forward premium on euros is -25%. This means that the euro is trading at a discount in the forward market compared to the spot market.

To calculate the forward premium on euros (or the forward discount on dollars), we can use the formula:

Forward Premium on Euros = ((Forward Rate - Spot Rate) / Spot Rate) * 100

Given the information you provided:

Spot exchange rate: $1.6 per euro

Forward exchange rate: $1.2 per euro

Using the formula, we can calculate the forward premium on euros:

((1.2 - 1.6) / 1.6) * 100 = (-0.4 / 1.6) * 100 = -0.25 * 100 = -25%

Therefore, the forward premium on euros is -25%. This means that the euro is trading at a discount in the forward market compared to the spot market.

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User Talkingrock
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