Question

The current U.S. dollar-yen spot rate is 125¥/$. If the 90-day forward exchange rate is 127 ¥/$ then the yen is selling forward at a per annum _________ (premium or discount?) of ___________% (what percentage?).

Answer 1

Answer:

discount of 6.3%

Explanation:

Since the same amount, in dollars, would buy you more yen at the 90-day forward rate then at the current date, the yen is selling forward at a discount. The discount per annum is given by:

$D=\frac{127-125}{127}*4 =0.063=6.3\%$

The yen is selling forward at a per annum discount of 6.3%

Answer 2

Answer:

Discount ; 6.3%

Explanation:

percentage = (127-125)/127 × 4 = 0.063 × 100% = 6.3%

The yen is selling forward at a discount. Because the same amount, in dollars, would buy you more yen at the 90-day forward rate