a) b) US$/€ US$/€ Calculated Forward Period Days Forward Bid Rate Ask Rate Mid-Rate Premium spot 1.3231 1.3232 1.32315 1 month 30 1.3230 1.3231 1.32305 -0.0907% 2 months 60 1.3228 1.3229 1.32285 -0.1360% 3 months 90 1.3224 1.3227 1.32255 -0.1814% 6 months 180 1.3215 1.3218 1.32165 -0.2267% 12 months 360 1.3194 1.3198 1.31960 -0.2683% 24 months 720 1.3147 1.3176 1.31615 -0.2645% The forward rates progressively require less and less U.S. dollars per euro than the current spot rate. Therefore the dollar is selling forward at a premium and the euro is selling forward at a discount. c) Which maturities have the smallest and largest forward premiums? c) Which maturities have the smallest and largest forward premiums?
a) b) US$/€ US$/€ Calculated Forward Period Days Forward Bid Rate Ask Rate Mid-Rate Premium spot 1.3231 1.3232 1.32315 1 month 30 1.3230 1.3231 1.32305 -0.0907% 2 months 60 1.3228 1.3229 1.32285 -0.1360% 3 months 90 1.3224 1.3227 1.32255 -0.1814% 6 months 180 1.3215 1.3218 1.32165 -0.2267% 12 months 360 1.3194 1.3198 1.31960 -0.2683% 24 months 720 1.3147 1.3176 1.31615 -0.2645% The forward rates progressively require less and less U.S. dollars per euro than the current spot rate. Therefore the dollar is selling forward at a premium and the euro is selling forward at a discount. c) Which maturities have the smallest and largest forward premiums? c) Which maturities have the smallest and largest forward premiums?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
| a) | b) | ||||||||||
| US$/€ | US$/€ | Calculated | Forward | ||||||||
| Period | Days Forward | Bid Rate | Ask Rate | Mid-Rate | Premium | ||||||
| spot | 1.3231 | 1.3232 | 1.32315 | ||||||||
| 1 month | 30 | 1.3230 | 1.3231 | 1.32305 | -0.0907% | ||||||
| 2 months | 60 | 1.3228 | 1.3229 | 1.32285 | -0.1360% | ||||||
| 3 months | 90 | 1.3224 | 1.3227 | 1.32255 | -0.1814% | ||||||
| 6 months | 180 | 1.3215 | 1.3218 | 1.32165 | -0.2267% | ||||||
| 12 months | 360 | 1.3194 | 1.3198 | 1.31960 | -0.2683% | ||||||
| 24 months | 720 | 1.3147 | 1.3176 | 1.31615 | -0.2645% | ||||||
| The forward rates progressively require less and less U.S. dollars per euro than the current spot rate. Therefore the dollar is selling forward at a premium and the euro is selling forward at a discount. | |||||||||||
| c) Which maturities have the smallest and largest forward premiums? |
| c) Which maturities have the smallest and largest forward premiums? |
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