1) Forward rate is a term used in Future Stock Market, which represents the current expectations of future securities interest rates or exchange rate. It is calculated taking the current interest rate or exchange rate as base.
2) Forward premium is a price in the future presenting a situation where expected future price for a currency is higher to the current or spot price. It shows that future rate or price would increase of current rates or prices.
3) Forward discount is a price totally reverse of the Forward premium, which presents a situation where expected future price for a currency is lower to the current or spot price. It shows that future rate or price would decrease of current rates or prices.
4) To be long in a currency means buying the currency at the current rate/price with the expectation of rise in the rates in future and then squaring up the current bought position at higher rate or price.
5) To be short in a currency means selling the currency at the current rate/price with the expectation of decline in the rates in future and then squaring up the current sold position at lower rate or price.
Answer the short Question : What is a forward rate? What is a forward premium? What...
Arbitrage Rule of Thumb: If the difference in interest rates is greater than the forward premium/discount, or expected change in the spot rate for UIA, invest in the higher interest yielding currency. If the difference in interest rates is less than the forward premium (or expected change in the spot rate), invest in the lower yielding currency. John Duell, a foreign exchange trader at JPMorgan Chase, can invest $8 million, or the foreign currency equivalent of the bank's short term...
points) Compute the forward premium for Spot rate Yen / USD - 85.25: Forward rate 3 months forward premium (or discount with the following months = 83.60 Ground your (6) Spot rate USD/EUR - 1.13; Forward rate 6 months - 1. o months LTO (round your answer to 2 de
Answer the Short Question: a. What is "covered interest arbitrage"? b. What is "Fisher-open condition "? c. How does a forward covered investment avoid exchange-rate risk ? d. What is "bid" rate and "ask" rate on a foreign currency ?
What is implied if the forward currency is selling at a premium?
10. If a currency is at a forward premium by as much as its interest rate is lower than the interest rate in the other country, covered interest parity holds. a. True b. False
The difference between the forward rate and the spot rate is called the Question 2 options: indirect quote. direct quote. forward premium or forward discount. cross exchange rate.
If the forward price is higher than the spot price then the currency is trading at a: Multiple Choice discount in the spot market. Whether the currency is selling at a premium or a discount in the spot or forward market depends on whether the exchange rate is quoted in American or European terms. premium in the spot market. discount in the forward market. premium in the forward market.
Calculate the forward premium on the dollar (the dollar is the home currency) if the spot rate is €1.3300/$ and the 3-month forward rate is €1.3400/$. Note: Use a 360-day year. The forward premium on the dollar is _____________%. (Round to four decimal places).
When a currency trades at a forward discount in the forward market a. the forward rate is less than the spot rate. b. the forward rate is more than the spot rate. c. the forward exchange rate is less than one dollar (e.g. €1.00 = $0.928). d. the exchange rate is less than it was yesterday.
Suppose the spot exchange rate for the Canadian dollar is Can$1.12 and the six-month forward rate is Can$1.17. (Enter your answers as directed, but do not round intermediate calculations.) a. Which is worth more, a U.S. dollar or a Canadian dollar? b. Assuming absolute PPP holds, what is the cost in the United States of an Elkhead beer if the price in Canada is Can$2.49? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)...