Suppose the spot exchange rates quoted by three banks located in three different countries are as follows: Assume A$ is the home currency. Consider the following quoted rates for $/A$ by a dealer:

Spot 1-month An Australian trader expects the spot exchange rate after 1 month will be $0.6702/A$. The trader plans to purchase $40m from the dealer at the 1-month forward rate and convert the purchased $ back to A$ at the expected spot rate at that time.


(a) Determine the annual forward premium on $ for the quoted rates for the 1-month maturity.

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a The annual forward premium on for the quoted rates f... View the full answer