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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