• A forward market is an over-the-counter marketplace that sets the price of a financial instrument or asset for future delivery.

1.What is the forwardmarket?

2.What is meant by a currency trading at a discount or at a premium in the forwardmarket?

• The forward market means contracting today for the future purchase or sale of foreign exchange. The forward price is rarely the same as the spot price, when it is less than the spot price it is at a discount, when it is more it is at a premium.

3.Suppose the spot exchange rate for the Thai baht is 3.28 and the six-month forward rateis

3.15.

• Which is worth more, a Thai baht or a Japaneseyen?
• Is the Thai baht selling at a premium or a discount relative to the Japaneseyen?
• Which currency is expected to appreciate invalue?

4.Use quotation below to answer the followingquestions:

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Currencies June 5, 2013 U.S. dollar foreign-exchange rates in late New York trading US$ vs, Country/currency Wed in US$ Per US$ YTD chg (%) USS vs, Wed YTD chg Europe Country/currency in USS Per USS (%) Czech Rep. koruna .05076 19.700 3.6 Americas Denmark krone .1756 5.6938 0.7 Euro area euro 1.3092 .7638 0.8 Argentina peso .1889 5.2931 7.7 1-mos forward 1.3093 .7638 0.8 Brazil real 4700 2.1277 3.9 3-mos forward 1.3098 .7635 0.8 Canada dollar .9668 1.0344 4.2 6-mos forward 1.3107 .7629 0.8 Chile peso .001986 503.50 5.0 Hungary forint .004394 227.58 3.1 Colombia peso .0005263 1900.22 7.5 Norway krone .1721 5.8103 4.4 Ecuador US dollar 1 1 unch Poland zloty .3056 3.2726 5.8 Mexico peso .0778 12.8567 unch Russia ruble .03105 32.211 5.6 Peru new sol .3696 2.705 6.3 Sweden krona .1518 6.5894 1.3 Uruguay peso .04959 20.1650 5.6 Switzerland franc 1.0614 .9421 2.9 Venezuela b. fuerte .157480 6.3500 46.0 1-mos forward 1.0617 .9418 2.9 Asia-Pacific 3-mos forward 1.0624 .9412 2.9 Australian dollar .9542 1.0480 6-mos forward 1.0636 .9402 3.0 8.9 1-mos forward .9521 1.0503 8.2 Turkey lira .5283 1.8928 6.1 3-mos forward .9482 1.0546 8.2 UK pound 1.5405 .6491 5.5 6-mos forward .9425 1.0610 1-mos forward 1.5402 .6493 5.2 8.1 China yuan .1632 6.1274 -1.7 3-mos forward 1.5396 .6495 5.2 6-mos forward 1.5389 .6498 5.2 Hong Kong dollar .1288 7.7613 0.1 India rupee .01759 56.855 3.4 Middle East/Africa Indonesia rupiah .0001021 9792 1.6 Japan yen .010094 99.07 14.2 Bahrain dinar 2.6525 .3770 unch 1-mos forward .010095 99.06 12.4 Egypt pound .1431 6.9877 9.9 3-mos forward .010099 99.02 12.5 Israel shekel .2727 3.6668 -1.7 6-mos forward .010106 98.95 12.5 Jordan dinar 1.4123 .7081 -0.3 Malaysia ringgit .3243 3.0835 0.9 Kuwait dinar 3.5080 .2851 1.4 New Zealand dollar .7970 1.2547 3.9 Lebanon pound .0006614 1511.85 0.7 Pakistan rupee .01015 98.495 1.3 Saudi Arabia riyal .2666 3.7504 unch Philippines peso .0238 42.049 2.5 Singapore dollar .8003 1.2496 2.3 South Africa rand UAE dirham .0999 10.0073 18.3 .2723 3.6730 unch South Korea won .0008936 1119.02 5.2 Close Net Chg % Chg YTD % Chg Taiwan dollar .03339 29.953 3.1 WSJ Dollar Index 73.30 -0.20 -0.27 5.46 Thailand baht .03274 30.547 -0.1 | Vietnam dong .00004774 20948 0.8 Sources: The Wall Street Journal, June 6, 2013, p. CS. Reprinted by permission of The Wall Street Journal, 2013 Dow Jones & Company, Inc. All Rights Reserved Worldwide. Euro area exchange rates are 4 p.m. ET rates on June 5, 2013, from Bloomberg Currencies June 5, 2013 U.S. dollar foreign-exchange rates in late New York trading US$ vs, Country/currency Wed in US$ Per US$ YTD chg (%) USS vs, Wed YTD chg Europe Country/currency in USS Per USS (%) Czech Rep. koruna .05076 19.700 3.6 Americas Denmark krone .1756 5.6938 0.7 Euro area euro 1.3092 .7638 0.8 Argentina peso .1889 5.2931 7.7 1-mos forward 1.3093 .7638 0.8 Brazil real 4700 2.1277 3.9 3-mos forward 1.3098 .7635 0.8 Canada dollar .9668 1.0344 4.2 6-mos forward 1.3107 .7629 0.8 Chile peso .001986 503.50 5.0 Hungary forint .004394 227.58 3.1 Colombia peso .0005263 1900.22 7.5 Norway krone .1721 5.8103 4.4 Ecuador US dollar 1 1 unch Poland zloty .3056 3.2726 5.8 Mexico peso .0778 12.8567 unch Russia ruble .03105 32.211 5.6 Peru new sol .3696 2.705 6.3 Sweden krona .1518 6.5894 1.3 Uruguay peso .04959 20.1650 5.6 Switzerland franc 1.0614 .9421 2.9 Venezuela b. fuerte .157480 6.3500 46.0 1-mos forward 1.0617 .9418 2.9 Asia-Pacific 3-mos forward 1.0624 .9412 2.9 Australian dollar .9542 1.0480 6-mos forward 1.0636 .9402 3.0 8.9 1-mos forward .9521 1.0503 8.2 Turkey lira .5283 1.8928 6.1 3-mos forward .9482 1.0546 8.2 UK pound 1.5405 .6491 5.5 6-mos forward .9425 1.0610 1-mos forward 1.5402 .6493 5.2 8.1 China yuan .1632 6.1274 -1.7 3-mos forward 1.5396 .6495 5.2 6-mos forward 1.5389 .6498 5.2 Hong Kong dollar .1288 7.7613 0.1 India rupee .01759 56.855 3.4 Middle East/Africa Indonesia rupiah .0001021 9792 1.6 Japan yen .010094 99.07 14.2 Bahrain dinar 2.6525 .3770 unch 1-mos forward .010095 99.06 12.4 Egypt pound .1431 6.9877 9.9 3-mos forward .010099 99.02 12.5 Israel shekel .2727 3.6668 -1.7 6-mos forward .010106 98.95 12.5 Jordan dinar 1.4123 .7081 -0.3 Malaysia ringgit .3243 3.0835 0.9 Kuwait dinar 3.5080 .2851 1.4 New Zealand dollar .7970 1.2547 3.9 Lebanon pound .0006614 1511.85 0.7 Pakistan rupee .01015 98.495 1.3 Saudi Arabia riyal .2666 3.7504 unch Philippines peso .0238 42.049 2.5 Singapore dollar .8003 1.2496 2.3 South Africa rand UAE dirham .0999 10.0073 18.3 .2723 3.6730 unch South Korea won .0008936 1119.02 5.2 Close Net Chg % Chg YTD % Chg Taiwan dollar .03339 29.953 3.1 WSJ Dollar Index 73.30 -0.20 -0.27 5.46 Thailand baht .03274 30.547 -0.1 | Vietnam dong .00004774 20948 0.8 Sources: The Wall Street Journal, June 6, 2013, p. CS. Reprinted by permission of The Wall Street Journal, 2013 Dow Jones & Company, Inc. All Rights Reserved Worldwide. Euro area exchange rates are 4 p.m. ET rates on June 5, 2013, from Bloomberg