The Wall Street Journal reported the following spot and forw

The Wall Street Journal reported the following spot and forward rates for the Swiss franc ($/SF). Spot 30-day forward 90-day forward 180-day forward $ 8204 S 8508 S 8542 $ 8589 a. Was the Swiss franc selling at a discount or premium in the forward market? Premium ODiscount b. What was the 30-day forward premium (or discount)? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) 30-day forward premium/discount c. What was the 90-day forward premium (or discount)? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) 90-day forward premium/discount% d. Suppose you executed a 90-day forward contract to exchange 120,000 Swiss francs into U.S. dollars. How many dollars would you get 90 days hence? Dollars for Swiss francs

Solution

Solution: a. Premium Working Notes: The Swiss franc selling at premium in the forward market, as all the three forward rates are higher than current spot rate. b. 30-day forward premium/discount 44.47% Working Notes: 30-day forward premium = ((30-day Forward rate - spot rate)/Spot rate ) x (360/30) x 100% =((0.8508 - 0.8204)/0.8204) x (360/30) x 100% =0.037055095 x 12 x 100% =44.46611409 % =44.47 % 30-day forward premium 44.47% c. 90-day forward premium/discount 16.48% Working Notes: 90-day forward premium = ((90-day Forward rate - spot rate)/Spot rate ) x (360/90) x 100% =((0.8542 - 0.8204)/0.8204) x (360/90) x 100% =0.041199415 x 4 x 100% =16.47976597 % =16.48 % 90-day forward premium 16.48% d. Dollars for Swiss francs $102,504 Working Notes: Dollars for 120,000 Swiss francs = 90-day forward rate x 120,000 =0.8542 x 120,000 =$102,504 e. Swiss francs for $120,000      SF 139,713.59 Working Notes: Swiss francs for $120,000 = $120,000/180-day forward rate =120,000/0.8589 =139,713.587146 = SF 139,713.59 Please feel free to ask if anything about above solution in comment section of the question.