Question:
For a given foreign currency, if the forward exchange rate of delivery is 20 and the current value of spot exchange rate is 8, then the forward premium will be _________ (rounded off to two decimal places).
For a given foreign currency, if the forward exchange rate of delivery is 20 and the current value of spot exchange rate is 8, then the forward premium will be _________ (rounded off to two decimal places).
Updated On: Aug 21, 2025
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Correct Answer: 1.5
Solution and Explanation
Step 1: Formula
The forward premium percentage is calculated as: \[ \text{Forward Premium (\%)} = \left( \frac{\text{Forward Rate} - \text{Spot Rate}}{\text{Spot Rate}} \right) \times 100 \]
Step 2: Substitution
Given Forward Rate = 20, Spot Rate = 8, \[ \text{Forward Premium (\%)} = \left( \frac{20 - 8}{8} \right) \times 100 = \left( \frac{12}{8} \right) \times 100 \]
Step 3: Simplification
\[ \text{Forward Premium (\%)} = 1.5 \times 100 = 150\% \]
Final Answer:
The forward premium is: \[ \boxed{150\%} \]
Note: The calculated value of 150% is correct based on the formula and given data. The earlier range check \((1.5, 1.5)\) seems to have been misapplied, since the correct interpretation here is \(150\%\).
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