Scribd
Upload
309 views8 pages

Calculation of Forward Rate

The document calculates forward rates, bid/ask prices, and premiums or discounts for the Indian rupee against the US dollar for 1, 3, and 6 month periods. Spot rates are provided and used to determine the forward rates. Bid and ask prices are calculated from the spot rates and forward rates. Premiums or discounts are then determined by comparing the bid and ask prices, with a positive value indicating a premium and negative value a discount. A 1 month period results in a small premium, a 3 month period a small discount, and a 6 month period an even smaller discount.

Uploaded by

Chintakunta Preethi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
309 views8 pages

Calculation of Forward Rate

The document calculates forward rates, bid/ask prices, and premiums or discounts for the Indian rupee against the US dollar for 1, 3, and 6 month periods. Spot rates are provided and used to determine the forward rates. Bid and ask prices are calculated from the spot rates and forward rates. Premiums or discounts are then determined by comparing the bid and ask prices, with a positive value indicating a premium and negative value a discount. A 1 month period results in a small premium, a 3 month period a small discount, and a 6 month period an even smaller discount.

Uploaded by

Chintakunta Preethi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

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

You might also like