The Wall Street Journal reported the following spot and forward rates for the Sw

Question

The Wall Street Journal reported the following spot and forward rates for the Swiss franc ($/SF). Spot $ .8220 30-day forward $ .8540 90-day forward $ .8558 180-day forward $ .8605 a. Was the Swiss franc selling at a discount or premium in the forward market? Premium Discount 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.) 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.) d. Suppose you executed a 90-day forward contract to exchange 280,000 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 $280,000. How many francs will the Swiss bank deliver in six months to get the U.S. dollars? (Round your answer to 2 decimal places.)

Explanation / Answer

a)

Selling at premium

b)

Forward premium = ((Forward rate-spot rate) / Spot rate)* (360 / days)

30-day forward premium = ((0.8540-0.8220) / 0.8220)*(360/30)

= 46.72%

c)

90-day forward premium = ((0.8558-0.8220) / 0.8220)*(360/90)

= 16.45%

d)

Dollars received = 280000*0.8558 = 239624 $

e)

Swiss franks = 280000 / 0.8605 = 325392.21 SF

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