CMA Study Group

Hi everyone,

I am preparing the CMA P2 and have difficult in understanding why it would × 360 ÷ 180 to get the answer  of 

5% premium, why not 2.5% premium

Bank of America quoted the 180-day forward rate on the Japanese Yen at $0.009702/¥. The spot rate was quoted at $0.009466/¥. What is the forward premium or discount on the Japanese Yen? (Round your final answer to the nearest percentage.)

thanks

Nancy

Hello Nancy,

Trust you are safe and doing great in Part-2

First of all, would you please address the subject of your question instead of copying the whole paragraph in subject bar. 

Second, it would be highly appreciated if you mention please from which course you have attached this case study ?? Version release date ??

Third, the formula is: Forward premium = [( Spot rate - Forward rate) / Forward rate ] x (360 / days)

Applying the given information, you get the answer of 5%. It makes very sense that we should consider the 180 days instead of annual premium.

Please check this link for reference: Investopedia - Forward Premium

Kind regards

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Samer Ahmad, FMVA, SCA
Kuwait
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Original Message:
Sent: 07-01-2020 07:46 AM
From: Xinqin Yang
Subject: Bank of America quoted the 180-day forward rate on the Japanese Yen at $0.009702/¥. The spot rate was quoted at $0.009466/¥. What is the forward premium or discount on the Japanese Yen? (Round your final answer to the nearest percentage.)

Hi everyone,

I am preparing the CMA P2 and have difficult in understanding why it would × 360 ÷ 180 to get the answer  of 

5% premium, why not 2.5% premium

Bank of America quoted the 180-day forward rate on the Japanese Yen at $0.009702/¥. The spot rate was quoted at $0.009466/¥. What is the forward premium or discount on the Japanese Yen? (Round your final answer to the nearest percentage.)

thanks

Nancy