Question #3
Reading: Reading 5 Currency Exchange Rates - Understanding Equilibrium Value
PDF File: Reading 5 Currency Exchange Rates - Understanding Equilibrium Value.pdf
Page: 1
Status: Unattempted
Correct Answer: A
Question
Today, the spot rate on pounds sterling is $0.6960 and 90-day forward pounds are priced at $0.6925. The forward discount/premium is:
Answer Choices:
A. premium of $0.0035
B. premium of $0.0005
C. discount of $0.0035
Explanation
Premium (discount) = F-S = 0.6925-0.696 = -0.0035 (i.e., a discount).