he Wall Street Journal reported the following spot and forward rates for the Swiss franc ($/SF).

 

 	 	 
Spot	$	0.8206
30-day forward	$	0.8512
90-day forward	$	0.8544
180-day forward	$	0.8591
 

a. Was the Swiss franc selling at a discount or premium in the forward market?

 

multiple choice
Discount
Premium

 

b. What was the 30-day forward premium (or discount) percentage? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

 



 

c. What was the 90-day forward premium (or discount) percentage? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

 



 

d. Suppose you executed a 90-day forward contract to exchange 140,000 Swiss francs into U.S. dollars. How many dollars would you get 90 days hence?

 



 

e. Assume a Swiss bank entered into a 180-day forward contract with Bankers Trust to buy $140,000. How many francs will the Swiss bank deliver in six months to get the U.S. dollars? (Round your answer to 2 decimal places.)

 



Let's break down the questions one by one.

### a. Is the Swiss franc selling at a discount or premium in the forward market?

To determine if the Swiss franc (SF) is selling at a discount or premium, we compare the forward rates to the spot rate. The spot rate is 0.8206 USD/SF, and the forward rates are higher (0.8512, 0.8544, and 0.8591). When the forward rate is higher than the spot rate, the foreign currency is selling at a premium in the forward market.

Thus, the Swiss franc is selling at a **premium**.

**Answer: Premium**

---

### b. What was the 30-day forward premium (or discount) percentage?

To calculate the forward premium or discount percentage, we use the following formula:

\[
\text{Forward Premium or Discount (\%)} = \left( \frac{\text{Forward Rate} - \text{Spot Rate}}{\text{Spot Rate}} \right) \times \left( \frac{360}{\text{Number of Days}} \right) \times 100
\]

For the 30-day forward:

\[
\text{Forward Premium (\%)} = \left( \frac{0.8512 - 0.8206}{0.8206} \right) \times \left( \frac{360}{30} \right) \times 100
\]

Now calculate:

\[
\frac{0.8512 - 0.8206}{0.8206} = 0.0372
\]

\[
0.0372 \times \left( \frac{360}{30} \right) = 0.0372 \times 12 = 0.4464
\]

\[
\text{Forward Premium (\%)} = 0.4464 \times 100 = 4.46\%
\]

**Answer: 4.46%**

---

### c. What was the 90-day forward premium (or discount) percentage?

Using the same formula as in part b, but for the 90-day forward:

\[
\text{Forward Premium (\%)} = \left( \frac{0.8544 - 0.8206}{0.8206} \right) \times \left( \frac{360}{90} \right) \times 100
\]

Now calculate:

\[
\frac{0.8544 - 0.8206}{0.8206} = 0.0412
\]

\[
0.0412 \times \left( \frac{360}{90} \right) = 0.0412 \times 4 = 0.1648
\]

\[
\text{Forward Premium (\%)} = 0.1648 \times 100 = 16.48\%
\]

**Answer: 16.48%**

---

### d. How many dollars would you get 90 days hence with 140,000 Swiss francs?

You need to exchange 140,000 SF using the 90-day forward rate of 0.8544 USD/SF:

\[
\text{Dollars Received} = 140,000 \times 0.8544 = 119,616
\]

**Answer: $119,616**

---

### e. How many francs will the Swiss bank deliver in 180 days to get $140,000?

You are given that the Swiss bank is buying $140,000 and the 180-day forward rate is 0.8591 USD/SF. To find how many Swiss francs the bank needs to deliver:

\[
\text{Swiss Francs Delivered} = \frac{140,000}{0.8591} = 162,952.12
\]

**Answer: 162,952.12 Swiss francs**

---

Do you want further details or have any questions? 

Here are 5 related questions for further exploration:
1. How does a forward premium or discount indicate expectations about currency appreciation or depreciation?
2. What factors can influence changes in forward rates over time?
3. How do interest rate differentials between two countries relate to forward premiums and discounts?
4. What are the risks associated with forward contracts in the foreign exchange market?
5. How would the forward premium or discount change if the spot rate fluctuates rapidly?

**Tip:** When dealing with exchange rates, always pay attention to the distinction between the base currency (e.g., USD/SF) to avoid calculation errors!

The Wall Street Journal reported the following spot and forward rates for the Swiss franc ($/SF).

Spot: $0.8206
30-day forward: $0.8512
90-day forward: $0.8544
180-day forward: $0.8591


 a. Was the Swiss franc selling at a discount or premium in the forward market?

multiple choice
Discount
Premium

b. What was the 30-day forward premium (or discount) percentage? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

c. What was the 90-day forward premium (or discount) percentage? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

d. Suppose you executed a 90-day forward contract to exchange 140,000 Swiss francs into U.S. dollars. How many dollars would you get 90 days hence?

e. Assume a Swiss bank entered into a 180-day forward contract with Bankers Trust to buy $140,000. How many francs will the Swiss bank deliver in six months to get the U.S. dollars?

This page covers a detailed solution to calculating forward premiums for Swiss francs using spot and forward exchange rates. It explains how to find the 30-day and 90-day forward premiums and perform currency exchange calculations for specific forward contracts.

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