The five-year yen denominated interest rate is 6% per annum (compounded annually). The five year dollar interest rate is 8.5%. What is the implied forward premium or discount of the yen (over the current spot rate) for a five year forward contract?

Here is the answer for the question – The five-year yen denominated interest rate is 6% per annum (compounded annually). The five year dollar interest rate is 8.5%. What is the implied forward premium or discount of the yen (over the current spot rate) for a five year forward contract?. You’ll find the correct answer below

The five-year yen denominated interest rate is 6% per annum (compounded annually). The five year dollar interest rate is 8.5%. What is the implied forward premium or discount of the yen (over the current spot rate) for a five year forward contract?
a. 2.72% premium
b. 18.46% discount
c. 2.47% premium
d. 12.36% premium

The Correct Answer is

c. 2.47% premium

Reason Explained

c. 2.47% premium is correct for The five-year yen denominated interest rate is 6% per annum (compounded annually). The five year dollar interest rate is 8.5%. What is the implied forward premium or discount of the yen (over the current spot rate) for a five year forward contract?

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