b. What is the annual forward premium on the yen for all maturities? (Assume that the U.S. dollar is the home currency.) The annual forward premium is: Spot rateMid-Rate -Forward rateMid-Rate Forward rateMid-Rate The annual forward premium for all maturities is calculated below: Forward premium= Period Spot 1 month 2 months 3 months 6 months 12 months 24 months Days Forward 0 30 60 90 180 380 720 Bid Rate \/$ 85.60 86.20 86.03 85.57 84.43 84.17 83.11 -x(360/Days) Ask Rate \/$ 85.65 86.24 86.08 85.61 84.46 84.21 83.16 Forward Premium -8.281 % -2.998 0.164 2.795 1.705 1.498

b. What is the annual forward premium on the yen for all maturities? (Assume that the U.S. dollar is the home currency.) The annual forward premium is: Spot rateMid-Rate -Forward rateMid-Rate Forward rateMid-Rate The annual forward premium for all maturities is calculated below: Forward premium= Period Spot 1 month 2 months 3 months 6 months 12 months 24 months Days Forward 0 30 60 90 180 380 720 Bid Rate \/$ 85.60 86.20 86.03 85.57 84.43 84.17 83.11 -x(360/Days) Ask Rate \/$ 85.65 86.24 86.08 85.61 84.46 84.21 83.16 Forward Premium -8.281 % -2.998 0.164 2.795 1.705 1.498

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter7: International Arbitrage And Interest Rate Parity

Section: Chapter Questions

Problem 40QA

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Use the information below to answer the questions that follow. Japanese yen Japanese yen 6 month Australian dollar Australian dollar 3 month U.S. $ EQUIVALENT .00916 .00899 .7748 .7751 a. Yen b. Australian dollar c. Dollar relative to yen d. Dollar relative to A$ CURRENCY PER U.S. $ 109.20 111.21 1.2907 1.2902 a. Is the yen selling at a premium or a discount? b. Is the Australian dollar selling at a premium or a discount? c. Do you expect the value of the dollar to increase or decrease relative to the value of the yen? d. Do you expect the value of the dollar to increase or decrease relative to the value of the Australian dollar?
) In another case are these quotes: Spot rate €1.2562/£; 1 month forward €1.2662/£. Which of the two currencies is trading at forward premium?
Forward premiums/discounts. Referring to the forward quotes in the Wall Street Journal (Exhibit 5.5) for the Japanese yen, determine whether the yen is at a premium or discount against the U.S. dollar. What is the percentage premium/discount for maturities of one, three, and six months? Included images for reference
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) In another case are these quotes: Spot rate €1.2562/£; 1 month forward €1.2662/£ Which of the two currencies is trading at forward discount? And why
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