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Hello,
1) In BPP, they say: “When a currency is more expensive forward than spot, it is quoted forward ‘at a premium’ to the spot rate.” Does it mean that, for example, if the spot rate is $:£ 1.5, the forward rate is higher (i.e. more than 1.5) than the spot?2) If the spot rates are $:£ 2.1086 – 2.1178 and forward discounts are 0.0032 – 0.0036, what are the forward rates? Does it matter whether I need to sell or buy pounds?
and what would be your answer:
MarieG Co needs to make a payment of £150,000 in 6 months’ time. Using the following information what is the $ payment expected then if MarieG Co uses a forward contract?
Spot rate £0.71 – 0.72 per $1
Discount £0.03 – 0.05.Thanks a lot!
GigaI explain all this in my free lectures on foreign exchange risk management!!
We subtract a premium and we add a discount to get the forward rate, and then use the normal rules (as again I explain in my lectures) to decide which of the two rates to use depending on whether we are receiving or paying the foreign currency.
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