If an investor wanted to buy euros spot (at $0

Business Sep 12, 2020

If an investor wanted to buy euros spot (at $0.9080) and sell euros forward for 180 days (at $0.9146). What is the forward premium or discount on 180 dat euros? How would I calculate this problem?

Expert Solution

Since Euro forward is available at a higher price there is a forward premium
Forward premium = (Ft,T - St)/ St *360/T
T = time period = 180 days
Ft,T = 0.9146
St = 0.9080
Forward premium = (0.9146-0.9080)/0.9080*360/180=0.01454 = 1.454%

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