[Nadhira]

I apologize, I think my understanding is completely wrong.

[Nadhira]

Sir, I have another question regarding forward exchange rate.

Question:
The current spot rate for the US dollar/euro is $/€ 2.0000 +/- 0.003. The dollar is quoted at a 0.2c premium for the forward rate.
What will a $2000 receipt to be translated to at the forward rate?

Answer:
The spot rate for translating $ to € is 2.0000 + 0.003 = $2.003 / € – the worst rate for someone selling dollars. The dollar is at a premium so subtract the premium because the exchange rate is to the Euro so if the $ is strengthening then the Euro is weakening on the forward market.

Could you explain further as to why we subtract the premium of 0.2c? From my understanding, we subtract the premium because we are using today’s rate so, minus off the premium to get today’s rate. Correct me if I’m wrong!

Thank you.

[Nadhira]

I get it, Sir. Thank you so much!

[Author]

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