Question

​The 90-day forward rate for the euro is $1.07, while the current spot rate of the euro is $1.05. What is the annualized forward premium or discount of the euro?

Answer 1

7.6 percent

Step-by-step explanation:

The forward rate for the euro is $1.07

The current spot rate for the euro is $1.05

Therefore the annualized forward premium or discount of the euro can be calculated as follows

= forward rate/Current spot rate - 1 × 360/90

= $1.07/$1.05-1 × 360/90

= 1.0190-1×4

= 0.0190×4

= 0.076×100

= 7.6 percent

Hence the annualized forward premium or discount of the euro is 7.6 percent