18. The Wall Street Journal reported the following spot and forward rates for th

Question

18. The Wall Street Journal reported the following spot and forward rates for the Swiss franc (S/SF): .$0.8210 0.8250 ....$0.8298 $0.8355 a. What was the 30-day forward premium (or discount)(3pts)? b. What was the 90-day forward premium (or discount) (3pts)? C. Suppose you executed a 90-day forward contract to exchange 100,000 Swiss francs into U.S. dollars. How many dollars would you get 90 days hence (3pts)? Assume a Swiss bank entered into a 180-day forward contract with Bankers Trust to buy $100,000. How many francs will the Swiss bank deliver in sik months to get the U.S. dollars (3pts)? d.

Explanation / Answer

a. 30-day forward premium is simply the difference between the 30-day forward rate and the spot rate

that is, $0.8250-$0.8210 ($/SF)= $0.0040

b. Similarly, 90-day forward premium ($/SF)= $0.8298-$0.8210 = $0.0088

c. Since swiss francs is exchanged for dollars, we will use the 90 day forward rate for conversion.

1 SF = $0.8298 => 100,000 SF = 100,000*$0.8298 = $82,980

d. Since swiss bank want to buy 1,00,000 dolllar with 180 day forward contract,

$/SF = $0.8355 or SF/$ = SF 1/0.8355 = SF 1.1969

hence, $ 100,000 = SF 1.1969*100,000 = SF 119,690 [is the required answer]

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