Forward Premium / Discount Solve for the 3 month and 6 month forward premium or discount for the Australian dollar in American terms (equation 5.18) and for the Australian dollar in European terms (equation 5.19) as demonstrated in the Example 5.5 on page 132.

Recall the formulas:

Quoted in American Terms: f, = (F( $ j ) S ( $ j )) S( $ j ) 360 #

The answer (premium or discount) is how the foreign currency is trading compared to the US dollar for delivery in X days.

Quoted in European Terms: f,$ = (F( j $ ) S ( j $ )) S( j $ ) 360 #

The answer (premium or discount) is how the US currency is trading compared to the foreign currency for delivery in X days.

Use the forward and spot rates for June 5 from exhibit 5.4. For three months use 94 days for delivery. For six months use 184 days for delivery. LABEL your answers AND INTERPRET your answers.

A. 3 month forward premium or discount for A$ in American terms

B. 3 month forward premium or discount for A$ in European terms

C. 6 month forward premium or discount for A$ in American terms

D. 6 month forward premium or discount for A$ in European terms