Spot and forward rates - hw PDF

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A spot rate represents the contracted price for the purchase or sale of a currency for immediate delivery and payment on the spot date. In simple terms the spot rate is the current price quoted for immediate settlement of the contract. In comparison the forward rate is the settlement price of a transaction that is forward looking and provides a conversion rate for the currency at a future time. On 2/28/2021 – The Spot Exchange rate $1 USD = 106.56Yen. On 2/28/2021 – The Forward Exchange rate $1 USD = 106.55Yen. The 6 months forward rate = -22.6600

Spot exchange rate is the current rate prevailing in the market and forward rate is the rate being offered at the time of expiration of the time period but quoted today. For a transaction that needs to occur in the immediate time period, spot rate is the right choice, but for a future transaction We should use the forward exchange rate that will be locked today. In this scenario , given that the forward rate is -22.66; the forward premium is negative and is thus equivalent to a discount so it beneficial to use the future exchange rate. $9385.27 would be needed....