CFA Practice Question

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CFA Practice Question

What is the annualized forward premium if € are selling for $1.2268 and the 180-day forward market rate is $1.2432?

A. 2.64%
B. -2.64%
C. 2.67%
Correct Answer: C

The forward premium equals the forward rate minus the spot rate all divided by the spot rate times 360 divided by the number of the days of the forward contract, in this case, (1.2432 - 1.2268)/1.2268 x (360/180) = 2.67%.

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