Implied forward premium or discount
The current five-year Euroyen rate is 6% per annum (compounded annually), the five-year Eurodollar rate is 8.5%. What is the implied forward premium or discount of yen (over the current spot rate) for five year period contract.
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^ denotes power
[Forward rate (Y/$) / Spot rate (Y/$)] = ( 1+ Yen interest rate ) ^ n of years / ( 1+ Yen interest rate ) ^ n of years / ( 1+ $ interest rate) ^ no of ...
Solution Summary
Solution calculates implied forward premium (or discount) of yen given five-year Euroyen rate and the five-year Eurodollar rate.
$2.19