Use the following spot and forward bid-ask rates for the JPY/USD exchange rate to answer the following questions:
a. Are the rates quoted in American or European terms?
b. What is the mid-rate for each maturity?
c. Is the JPY is trading forward at a premium or discount?
d. What is the annual forward premium or discount for all maturities?
e. Which maturities have the smallest and largest forward premium or discount?
f. What do these rates indicate about the market's expectations for future JPY/USD rates?
Period
|
JPY/USD Bid Rate
|
JPY/USD Ask Rate
|
Spot
|
114.23
|
114.27
|
1 month
|
113.82
|
113.87
|
2 months
|
113.49
|
113.52
|
3 months
|
113.05
|
113.11
|
6 months
|
112.05
|
112.11
|
12 months
|
110.20
|
110.27
|
24 months
|
106.83
|
106.98
|