Econ Question

A foreign currency is at a forward premium if the forward rate: A) expressed in domestic currency is below the spot rate. B) expressed in foreign currency/domestic currency is above the spot rate. C) expressed in foreign currency/domestic currency is at the spot rate. D) expressed in domestic currency is above the spot rate.

havent read this since L1, but i’m feeling like D.

D

The answer is D. When it says expressed in domestic currency does it mean DC/FC? Could someone provide an example with actual numbers? Thanks.

Is this a Q Bank question?

Answer is D. Will look for sample and post. Unrelated question: What are you refering to as the “QBank”? Have heard of it on all the posts, but because I never got a chance to do question papers before the LI, I am not familiar with it. How can I get it?

Went back through all the stuff that came from Schweser and found a CD called just that “QBank”…Thanks!

dancingqueen Wrote: ------------------------------------------------------- > The answer is D. When it says expressed in > domestic currency does it mean DC/FC? Could > someone provide an example with actual numbers? > Thanks. Yes could anyone elaborate?

foreign (foreign) expressed in domestic () means: Euro = 1.48\*US (direct) foreign/domestic would be 1/1.48 (indirect)

Spot: 2 DC/FC = 2 DC (spot expressed in DC units) Forward rate: 3 DC/FC = 3 DC (forward expressed in DC units) Foreign currency is a at a forward premium (it costs more DC to buy a unit of FC for future delivery than for delivery today).

Answer: D For a spot where \$ is the domestic currency: 1.50/Euro = .67 Euro/ A) expressed in domestic currency is below the spot rate. 1.45/Euro (It costs less per Euro so the Euro is at a forward discount) B) expressed in foreign currency/domestic currency is above the spot rate. .70 Euro/ (It costs more Euro per so the Euro is at a forward discount) Same as 1.43/Euro (It costs less per Euro so the Euro is at a forward discount) C) expressed in foreign currency/domestic currency is at the spot rate. .67 Euro/\$ (Same as the spot rate, so no discount or premium) D) expressed in domestic currency is above the spot rate. 1.50/Euro (It costs more per Euro so the Euro is at a forward premium)

Ahhh, if only the questions on the exam were actually like this f*cking easy, I would’ve passed last year. D…but seriously, where is this question from?

Above should have stated: D) expressed in domestic currency is above the spot rate. 1.55/Euro (It costs more per Euro so the Euro is at a forward premium)

Dancingqueen were you in a fraturnity?

i understand the concept well… but i am just not sure as to how they quote things. aussie expressed in domestic currency i think is US\$/AU, because that’s the value of the aussie dollar expressed in aussie. US\$/AU is the value of the U.S. expressed in aussie… not too sure about this. do they make this clear in the readings? and i have done the readings. i wondered about it at the time.

westbruin: 1.99 / Big Mac is the value of one Big Mac expressed in Dollar. So US/AU is the value of the Aussie expressed in US Dollar.