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Exchange Rate: Premium/ Discount

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The Wall Street Journal reported the following spot and forward rates for the Swiss franc ($/SF).

Spot $0.7642
30-day forward $0.7670
90-day forward $0.7723
180-day forward $0.7728

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 Summary

The solution determines whether the Swiss franc is selling at a discount or premium in the forward market. It also calculates the 30-day forward premium (or discount) and the 90-day forward premium (or discount). Amounts of Swiss francs/ U.S. dollars exchanged after 90 days and 6 months are also calculated.

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The Wall Street Journal reported the following spot and forward rates for the Swiss franc ($/SF).

Spot $0.7642
30-day forward $0.7670
90-day forward $0.7723
180-day forward $0.7728

a. Was the Swiss franc selling at a discount or premium in the forward market?

Swiss franc is depreciating
SF 1 can buy $0.7642 dollars Spot market
SF 1 can buy $0.7670 dollars 30 days
SF 1 can buy $0.7723 dollars 90 days
SF 1 ...

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