The 90-day forward rate for the euro is £0.71, while the current spot rate of the euro is £0.73. What is the annualized forward premium or discount of the euro to the nearest per cent?
A) 3 per cent discount.
B) 3 per cent premium.
C) 11 per cent premium.
D) 11 per cent discount.

Question

Quizplus · Accepted Answer

The euro is trading at a forward discount because the forward rate (£0.71) is less than the spot rate (£0.73). The annualized forward discount is calculated as ((Spot Rate - Forward Rate) / Spot Rate) * (360/90) * 100 = ((0.73 - 0.71) / 0.73) * 4 * 100 = 10.96%, which rounds to an 11% discount.

The 90-Day Forward Rate for the Euro Is £0