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hi,
referring to question 14 Little PLC of the open tuition practise questions, i got confused on the b part of the question as to when do i add or subtract the premium. pls help
regards
You do the opposite of what seems logical 🙂
So…..you subtract a premium (from spot), and you add a discount.The reason for it is that a premium it means that they are quoting the dollar at a premium. If the dollar is strengthening, then there will be less dollars to the pound so the exchange rate will be lower.
(However, in the middle of an exam I would prefer to remember it the way I have written in my second sentence :-)) )So far, the F9 examiner has always given the forward rates in full (rather than give a discount or premium). Before it was brought into the F9 syllabus it used to be only in P4 and that examiner did quote it as pm or dis. Whether the F9 examiner will ever quote it this way I do not know.
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