CMA Final · Strategic Financial Management · Foreign Exchange Market
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 of:
The dollar is at a 4.00% annual forward premium. The forward minus spot difference of 1.66 divided by spot 83 is 2% for six months, and annualising it by multiplying by two gives 4%.
- A4.00% p.a.Correct
- B2.00% p.a.
- C1.96% p.a.
- D3.92% p.a.
Explanation
Premium = (84.66 - 83.00)/83.00 x 12/6 = 1.66/83 x 2 = 0.02 x 2 = 4.00% p.a. Stating 2.00% ignores annualisation for the 6-month period.
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
- The spot rate is Rs 80/USD. Expected inflation is 6% in India and 2% in the US for the coming year. Using relative purchasing power parity, …
- The following quotes are available: USD/INR = 83.00 / 83.20 and EUR/USD = 1.0800 / 1.0850. A customer wants to buy EUR against INR through t…
- A Mumbai exporter receives a quote from a bank: USD/INR spot 83.2000 - 83.2800 (bid - ask). The exporter sells USD 50,000 to the bank at spo…
- An importer must pay USD 50,000 in 3 months. Spot is 83.00 and the 3-month forward is 83.60. If the spot after 3 months turns out to be 84.2…
- Spot USD/INR is 83.00. Inflation expected over the next year is 6% in India and 2% in the US. As per relative purchasing power parity, the e…
- Spot USD/INR is 82.00. The 3-month forward is quoted at 82.60. What is the annualised forward premium on the USD in percent, using simple in…