Question

Suppose the selling price of one-month forward Japanese yens is $0.010499 per yen, and the spot price is $0.010495 per yen. Complete the following formula for the per annum percentage premium (or discount) to calculate what the yen is worth in the one-month forward market.

Answer 1

Step-by-step explanation:

From the given information:

The per annum forward premium =
`(Forward \ price - spot \ price)/(spot \ price) * (12)/(1)`

`= (0.010499 - 0.010495)/(0.010499) * (12)/(1)`

`= (0.000004)/(0.010495) * 12`

`= 0.0003811 * 12`

= 0.004573

= 0.4573%

Since this is positive and because it is favorable, the price of the yen would rise in the one-month forward market making it premium.

We can conclude that: The yen is at premium against US dollar, due to the fact that it is worth more in one-month forward market.