When a currency trades at a forward discount in the forward market a. the forward rate...
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.
Homework Answers
Solution
Forward rate :is the different from the spot rate.depending upon whether the forward rate is greater than spot rate,given the currency in consideration .the forward may either be at a discount or at a premium.forward premium and discount are usually expressed as an annual percentage of difference between the the spot and forward rates.
If the currency is cheaper in forward or future value date,it is said to be at a discount.in other words when the forward rate is less than the spot rate it is said that the currency trades at a forward discount in the forward market
so option (a) is the correct Answer
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