Suppose that the 1-year forward rate of dollar per peso is $11.25,the current spot rate $/peso is $10.00,and the expected future spot rate $/peso is $11.50.The expected premium on the peso is:
A) -2.5%
B) 12.5%
C) 15%
D) 22.75%

Question

Quizplus · Accepted Answer

The expected premium on the peso is calculated as the percentage difference between the expected future spot rate and the current spot rate. The formula is: ((Expected Future Spot Rate - Current Spot Rate) / Current Spot Rate) * 100. Using the given values: (($11.50 - $10.00) / $10.00) * 100 = 15%.

Suppose That the 1-Year Forward Rate of Dollar Per Peso