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    Spot and Forward Rates: Was the Swiss franc selling at a discount or premium in the forward market?

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    The Wall street Journal reported the following spot and forward rates for 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 U.S. dollars. How many dollars would you get 90 days hence?
    e. 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 six months to get the U.S. dollars?

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    Solution Preview

    Please see the attached file
    The Wall street Journal reported the following spot and forward rates for 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?

    Swiss franc is selling at a premium because 1 Swiss franc costs $0.8202 in the spot market $0.8244 after 30 days, $0.8295 ...

    Solution Summary

    This solution calculates the forward premium and discount on currencies as well as the amount of dollars and swiss francs exchanged.

    $2.19