The present rate of deutsche marks per dollar is 1.79 and 90-day forward rate is 1.78. Compute the annualized discount rate in dollar assuming 365 days in a year.
Answers
Given : The present rate for deutsche marks per dollar is 1.79 and 90-day forward rate is 1.78.
To Find : the annualized discount rate in dollar assuming 365 days in a year.
A. -2.266%
B. -2.37%
C. -2.97%
D. -2.164%
Solution:
The present rate for deutsche marks per dollar is 1.79
90-day forward rate is 1.78.
=> Discount in 90 days = 1.79 - 1.78 = 0.01
=> Discount in 1 day = 0.01/90
=> Discount in 365 days ( 1 year ) = 365 * 0.01 /90 = 365 / 9000
annualized discount rate = 100 * (365 /9000)/ 1.79
= 365 / 161.1
= 2.266 %
option A is correct
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