CMA Final · Strategic Financial Management · Foreign Exchange Market
Spot USD/INR is 83.00 and the 3-month forward is 83.83. What is the annualised forward premium on the dollar?
The annualised forward premium is 4%. The three-month premium is 0.83 divided by 83, which equals 1%, and multiplying by 12/3 annualises it to 4%. The 1% figure is only the quarterly premium.
- A4.00%Correct
- B1.00%
- C3.00%
- D8.00%
Explanation
Premium for 3 months = (83.83 - 83.00)/83.00 = 0.83/83 = 1%. Annualised = 1% x 12/3 = 4%. Choosing 1% forgets annualising.
Did you get it right without looking?
One question tells you little. A timed set on Foreign Exchange Market shows your real accuracy, how long you take and where you lose marks.
More Foreign Exchange Market questions
- A Mumbai importer quotes: spot USD/INR = 83.2000 to 83.2800. The 6-month forward premium on USD is 40 paise to 50 paise (bid to offer). What…
- Spot EUR/INR is 90.00. Expected annual inflation is 6% in India and 2% in the Euro area. Under relative purchasing power parity, what is the…
- A bank quotes USD/INR spot as 83.2000/83.2800 and GBP/USD as 1.2500/1.2540. Based on these quotes, what rate will the bank charge a customer…
- A Mumbai bank quotes USD/INR spot as 83.2000/83.2800. An importer needs to buy USD 50,000 from the bank. How many rupees will the importer p…
- An Indian exporter will receive USD 200,000 in three months. Spot USD/INR is 83.00 and the three-month forward is quoted at 83.60. If the sp…
- Spot USD/INR is 83.00. The 6-month forward rate is 84.66. Using annualised premium on the direct quote, the dollar is at a forward premium o…