Question

The one-year forward rate of the British pound is quoted at $1.50, and the spot rate of the British pound is quoted at $1.515. The forward ____ is ____ percent.

Answer 1

Answer: a. discount; 1.0

Step-by-step explanation:

When the forward rate is higher than the spot rate, the rate is said to be a Premium. When the opposite holds true then the rate is said to be a discount.

Calculating the rate;

=
`(1.515-1.5)/(1.515)`

= 0.99

= 1.0

Forward rate is lower so this is a discount.