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Homework answers / question archive / For a U
For a U.S. trader working in American quotes, if the forward price is higher than the spot price A. the currency is trading at a premium in the forward market. B. the currency is trading at a discount in the forward market. C. then you should buy at the spot, hold on to it and sell at the forward Ts a built-in arbitrage. D. all of the above—it really depends if you're talking American or European Quotes.
Answer
A.
Explanation
When Forward rate for one currency is higher than the Spot rate, it means currency is trading at a premium in forward market. In this case, forward rate is higher, So, USD is trading at discount and EURO is trading at premium. The correct option is A "the currency is trading at a premium in the forward market".
