Suppose that the 1-year forward rate of dollar per Swiss franc is $0.42,the current spot rate $/SFr is $0.40,and the expected future spot rate $/SFr is $0.45.The risk premium equals to:
A) - 7.5%
B) 5%
C) 6.67%
D) 12.5%

Question

Quizplus · Accepted Answer

The risk premium is calculated as the difference between the forward rate and the expected future spot rate, divided by the current spot rate. Here, it is (0.42 - 0.45) / 0.40 = -0.075 or -7.5%.

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