a. What is the mid-rate for each maturity? b. What is the annual forward premium for all maturities? c. Which maturities have the smallest and largest forward premiums?

Fundamentals of Financial Management (MindTap Course List)
14th Edition
ISBN:9781285867977
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Eugene F. Brigham, Joel F. Houston
Chapter19: Multinational Financial Management
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Problem 4. Use the following spot and forward bid-ask rates for the U.S. dollar/euro (USS/€) exchange rate from December 10, 2010, to
answer the following questions:

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Problem 4 Dollar/Euro Forwards
Use the following spot and forward bid-ask rates for the U.S. dollar/euro (US$/€) exchange rate from December 10, 2010, to
answer the following questions:
Period
spot
1 month
2 months
3 months
6 months
12 months
24 months
US$/€
Bid Rate
1.3231
1.3230
1.3228
1.3224
1.3215
1.3194
1.3147
US$/€
Ask Rate
1.3232
1.3231
1.3229
1.3227
1.3218
1.3198
1.3176
a. What is the mid-rate for each maturity?
b. What is the annual forward premium for all maturities?
c. Which maturities have the smallest and largest forward premiums?
Transcribed Image Text:Problem 4 Dollar/Euro Forwards Use the following spot and forward bid-ask rates for the U.S. dollar/euro (US$/€) exchange rate from December 10, 2010, to answer the following questions: Period spot 1 month 2 months 3 months 6 months 12 months 24 months US$/€ Bid Rate 1.3231 1.3230 1.3228 1.3224 1.3215 1.3194 1.3147 US$/€ Ask Rate 1.3232 1.3231 1.3229 1.3227 1.3218 1.3198 1.3176 a. What is the mid-rate for each maturity? b. What is the annual forward premium for all maturities? c. Which maturities have the smallest and largest forward premiums?
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