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The current spot rate for the Dollar /Euro is $/€ 2.0000 +/- 0.003. The dollar is quoted at a 0.2c premium for the forward rate.
What will a $2,000 receipt be translated to at the forward rate?
If we were converting at spot, the relevant rate would be 2.0000 + 0.003 = 2.0030
For the forward rate, since it is quoted at a premium, we subtract it from the spot rate.
So the relevant rate to use is 2.0030 – 0.0020 = 2.0010
(You should watch our free lectures on foreign exchange risk where all of the above is explained in detail.)
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