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The foreign exchange department at Tokyo’s Daiwa Bank quoted the spot rate on the euro at €0.007230/¥. The 90-day forwar...

The foreign exchange department at Tokyo’s Daiwa Bank quoted the spot rate on the euro at €0.007230/¥. The 90-day forward rate is quoted at a premium of 4.20 percent on the euro. What is the 90-day forward rate? (Round answer to 6 decimal places, e.g. 15.251945. Use 360 days for calculation.)

Please write out the equation. I am trying to self teach myself this.

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Answer #1

Forward rate of Euro is quoted at premium

It means that Yen will buy fewer euros in future

Hence, forward rate = Spot rate - Premium

= 0.007230 - 4.20%*90/360

= Euro 0.007154085/Yen

i.e. Euro 0.007154/Yen

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