Problem:
Forward Premiums on the Australian Dollar. Use the following spot and forward bid-ask rates for the U.S. dollar/Australian dollar (US$/A$) exchange rate from December 10, 2010, to answer the following questions:
a. What is the mid-rate for each maturity?
b. What is the annual forward premium for all maturities?
c. Which maturities have the smallest and largest forward premiums?
Period US$/A$ Bid Rate US$/A$ Ask Rate
spot 0.98510 0.98540
1 month 0.98131 0.98165
2 month 0.97745 0.97786
3 month 0.97397 0.97441
6 month 0.96241 0.96295
12 month 0.93960 0.94045
24 month 0.89770 0.89900