7. If Euro has an exchange rate of 1€=$1.47 today and we are expecting a forward

Question

7. If Euro has an exchange rate of 1€=$1.47 today and we are expecting a forward exchange rate of 1€=$1.52 in three months, what is the premium/discount of Euro against $ (annual in % term)? What is the premium/discount of $ against Euro (annual in % term)?

8. Today you observed the exchange rate of Euro 1€=1.77$, while six-month ago you observed the exchange rate of dollar 1$=0.7143€. Did Euro appreciated or depreciated against US dollar during this six-month period? By what annual percentage rate?

Explanation / Answer

7. Premium of Euro against $ = (F/S)-1

=((1.52/1.47)-1)*360/90 = 13.61%

Discount of $ against Euro = (F/S)-1

=((0.65/0.68)-1)*360/90 = -13.16 %

8. Discount of Euro against $ = (F/S)-1

=((1.399/1.77)-1)*360/180 = -41.9%

Euro will depreciate against dollar in coming six months by 41.9%

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