CALCULATION OF FORWARD

RATE
Paper MB-305-1:Discipline Specific 2019
Sub:IF Part-B Marks:12 Q.No.7(b)
Q.The following are the spot, 1 month, 3 months
and 6 months forward exchange rates between
Indian Rupee and U.S. Dollar. You are
required to find the bid, Ask Prices, spread and
premium or discount.
Spot 1 Month 3 Month 6 Month
Rs. 71.2345/54 60/72 63/48 56/39
• Solution: Calculation of Outright Quotes and
Spread
Months Quote Bid Ask Spread
INR/USD Rate(Buy) Rate(Sell)
71.2345/54
1 Month INR/USD 71.2360 71.2372 -0.0012

3 Months INR/USD 71.2362 71.48 0.0015

6 Months INR/USD 71.2356 71.2339 0.0017

• Calculation of Premium/Discount Earned by Rupee
Against Dollar.
• Forward Premium/Discount can be calculated by using
the Formula:
F-S/S x12/nx100
Where F=Forward rate S=Spot rate n=Number of
months
Note: When the value is negative, then forward discount
and if it is positive then premium.
• For 1 Month Forward Rate
Bid 71.2345+0.0060=71.2405
Ask 71.2354+0.0072=71.2426
Bid=F-S/Sx12/nx100
=71.2405-71.2345/71.2345x12/1x100
=0.101074
Ask=F-S/Sx12/nx100
=71.2426-71.2354/71.2354x12/1x100
=0.121287
Since selling is greater than buying, we arrive at premium i.e.,
0.121287-0.101074=0.020213
• For 3 Month Forward Rate
Bid 71.2345+0.0063=71.2408
Ask 71.2354+0.0048=71.2402
Bid=F-S/Sx12/nx100
=71.2408-71.2345/71.2345x12/3x100
=0.035376
Ask=F-S/Sx12/nx100
=71.2402-71.2354/71.2354x12/3x100
=0.026952
Since selling is less than buying, we arrive at discount
i.e.,0.035376-0.026952=-0.008424
• For 6 Month Forward Rate
Bid 71.2345+0.0056=71.2401
Ask 71.2354+0.0039=71.2393
Bid=F-S/Sx12/nx100
=71.2401-71.2345/71.2345x12/6x100
=0.015722
Ask=F-S/Sx12/nx100
=71.2393-71.2354/71.2354x12/6x100
=0.013476
Since selling is less than buying, we arrive at discount i.e.,
0.013476-0,015722
=-0.002246