The Wall Street journal reported the following spot and forward rates for the Sw
ID: 2726425 • Letter: T
Question
The Wall Street journal reported the following spot and forward rates for the Swiss franc ($/SF).
Spot ....$0.8202
30-day forward .... $0.8244
90-day forward....... $0.8295
180-day forward..... $0.8343.
A. Was the Swiss franc selling at a discount or premium in the forward market?
B. What was the 30- day forward premium (or discount)?.
C. What was the 90-day forward premium (or discount)?
D. Suppose you executed a 90-day forward contract to exchange 100,000 Swiss francs into US dollars. How many dollars would you get 90 days hence?
E. Assume a Swissbank entered into a 180-day forward contract with Bankers trust to buy $100,000. How many francs will the Swiss bank deliver in six months to get the US dollars? Please show all work.
Explanation / Answer
A.
Calculation of discount or premium for Swiss Franc:
($/SF)
Spot Rate
$ 0.8202
30-day forward
$ 0.8244
90-day forward
$ 0.8295
180-day forward
$ 0.8343
Al Forward rates are more than the spot rate, hence we can say that Swiss franc is selling at a premium in the forward market
B.
Calculation of 30- day forward premium:
($/SF)
Spot Rate (A)
$ 0.8202
30-day forward (B)
$ 0.8244
Premium =(C) = B-A =
$ 0.0042
Premium %= C/A =
0.5121%
C.
Calculation of 90- day forward premium:
($/SF)
Spot Rate (A)
$ 0.8202
90-day forward (B)
$ 0.8295
Premium =(C) = B-A =
$ 0.0093
Premium %= C/A =
1.1339%
D.
Calculation of Dollars after 90 days :
Swiss francs for Exchange (A)
SF 100,000
90-day forward Rate ($/SF) (B)
$ 0.8295
Dollars = A*B =
$ 82,950
A.
Calculation of discount or premium for Swiss Franc:
($/SF)
Spot Rate
$ 0.8202
30-day forward
$ 0.8244
90-day forward
$ 0.8295
180-day forward
$ 0.8343
Al Forward rates are more than the spot rate, hence we can say that Swiss franc is selling at a premium in the forward market
B.
Calculation of 30- day forward premium:
($/SF)
Spot Rate (A)
$ 0.8202
30-day forward (B)
$ 0.8244
Premium =(C) = B-A =
$ 0.0042
Premium %= C/A =
0.5121%
C.
Calculation of 90- day forward premium:
($/SF)
Spot Rate (A)
$ 0.8202
90-day forward (B)
$ 0.8295
Premium =(C) = B-A =
$ 0.0093
Premium %= C/A =
1.1339%
D.
Calculation of Dollars after 90 days :
Swiss francs for Exchange (A)
SF 100,000
90-day forward Rate ($/SF) (B)
$ 0.8295
Dollars = A*B =
$ 82,950
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