CMA Final · Strategic Financial Management · The International Financial Environment
Spot USD/INR is 83.00 and the one-year forward rate is 84.66. Using the forward premium on the dollar, what is the annualised forward premium (as a percentage, to the nearest whole number)?
The annualised forward premium on the dollar is 2 percent. The forward rate exceeds spot by Rs 1.66, and dividing this difference by the spot rate of Rs 83 gives 0.02, which is 2 percent for the one-year period.
- A1%
- B2%Correct
- C3%
- D4%
Explanation
Premium = (84.66 - 83.00)/83.00 = 1.66/83 = 0.02 = 2% for one year. Choosing 3% or 4% would come from a wrong base or arithmetic slip; 1% halves the difference wrongly.
Did you get it right without looking?
One question tells you little. A timed set on The International Financial Environment shows your real accuracy, how long you take and where you lose marks.
More The International Financial Environment questions
- Under a floating exchange rate regime, which event would, other things equal, most directly cause the Indian rupee to appreciate against the…
- Under the Bretton Woods system that operated from 1944 until the early 1970s, which arrangement applied to member currencies?
- Indian one-year interest rate is 8% and the US one-year rate is 4%. Spot is Rs 80 per USD. As per interest rate parity, what is the approxim…
- Expected inflation is 6% in India and 2% in the USA. Spot is Rs 82 per USD. Under relative purchasing power parity, what is the expected spo…
- Spot USD/INR is 83.00. India's expected annual inflation is 6% and the US expected annual inflation is 2%. Using relative purchasing power p…
- Spot USD/INR is 83.00. India's expected annual inflation is 6% and the United States' expected annual inflation is 2%. Using relative purcha…