forward premium
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The Wall Street Journal reported the following spot and forward rates for the 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 US dollars. How many dollars would you get 90 days hence?
e) Assume a Swiss bank entered into a 180-day forward contract with Bank of America to buy 4100,000. How many francs will the Swiss bank deliver in six months to get the U.S. dollars?
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Solution Summary
A forward premium is considered in the case.
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a) As one needs to pay more dollars to buy the Swiss Franc in the forward market as compared to that in spot market, hence Swiss Franc ...
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