If the forward rate expressed in domestic currency units is above the spot rate, then the foreign currency is at a: A) forward premium. B) forward discount. C) spot premium. D) spot discount.
A
agree with A //direct quotes
A
If it is expressed as FC/DC then, Domestic premium = foreign discount. It is B. Did I missread?
Agree with A
disptra is right, you need to know if it is based off a direct or indirect quote. If based off of a DC/FC quote then a Fw rate being above the spot implies the FC will depreciate relative to the DC. Given that the forgien currency should be trading at a forward discount.
A
it says “expressed in domestic currency units” doesn’t that mean DC in the denominator?
DC/FC (express in domestic currency) which is A
So I just wrote 2 paragraphs explaining why B should be correct but then realized wy its not. I guess I should just think of its like a direct quote but when you say “it’s expressed in” then it seems you would assume you compare whatever values to the denominator. So yeah… Your answer: B was incorrect. The correct answer was A) forward premium. A foreign currency is at a forward premium if the forward rate expressed in domestic currency is above the spot rate. Forward premium = forward rate – spot rate.