What Was the Annualized Forward Premium on the Pound If

question 37

Multiple Choice

What was the annualized forward premium on the pound if the spot rate on January 20, 2005 was £0.5156$ and the 180 day forward rate was £0.5000/$?

• A) 6.24%
• B) 3.12%
• C) 1.56%
• D) 6.05%

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Definitions:

Counterparty

The other organization or party involved in a financial transaction.

Interest Rate Differential

The difference in interest rates between two distinct economic or financial entities, typically affecting currency value or investment decisions.

Forward Exchange Rates

Exchange rates at which two parties agree to exchange currencies at a future date.

Interest Rate Parity

A theory which states that the difference in interest rates between two countries is equal to the difference between the forward exchange rate and the spot exchange rate.