Question

The one-year forward rate of the British pound is quoted at $1.63, and the spot rate of the British pound is quoted at $1.60. The forward _______ is _______ percent

Answer 1

The forward is discount, which is -1.8%

Step-by-step explanation:

The forward rate is the rate of interest that is applicable or applied to the financial transaction, which will happen in the near future.

The percent is computed as:

= (Spot rate / Forward rate) - 1

where

Spot rate is $1.60

Forward rate is $1.63

Putting the values above:

= ($1.60 / $1.63) - 1

= $0.9815 - 1

= -1.8 %

which is forward discount.