Question

Problem 1 The following quotes are given for CAD/EUR: 1.4530/14535, 15-10, 22-14,30-20

for the spot, one month, three months and six months forward contracts.

a) calculate the outright quotations and the spread for the spot rate and the 3-month forward contract.

b) how is the spread related to time to maturity of the forward contract?

c) determine the percentage premium/ discount of the Canadian dollar with respect to the euro for the 3 months ask rates (annualized).

Answer 1

a)	One month - 1.4515/1.4525
	Two month - 1.4508/1.4521
	Three month - 1.4500/1.4515
b)	The spread is
	1 month - 0.0010
	2 month - 0.0013
	3 month - 0.0015
	The spread is more as the maturity increases.
c)	Percentage premium/(discount) wrt 3 months ask rate = 1.4515/1.4535-1 =	-0.14%
	Annualized rate = -0.14%*4 =	-0.55%