Bid/Ask on Dollar/Euro Forwards. Use the following spot and forward bid-ask rates for the U.S. dollar/euro

(US$/)

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?(Click on the

icon to import the table into a spreadsheet.)

Period	Bid Rate	Ask Rate
spot	1.3245	1.3246
1 month	1.3243	1.3244
2 months	1.3241	1.3242
3 months	1.3237	1.3239
6 months	1.3228	1.3231
12 months	1.3206	1.3209
24 months	1.3157	1.3188

a. What is the mid-rate for each maturity?

Calculate the mid-rate for each maturity below:(Round to five decimal places.)

	Days	Bid Rate	Ask Rate	Mid-rate
Period	Forward	US$/	US$/	US$/
Spot	0	1.3245	1.3246

1 month

30

1.3243

1.3244

2 months

60

1.3241

1.3242

3 months

90

1.3237

1.3239

6 months

180

1.3228

1.3231

12 months

360

1.3206

1.3209

24 months

720

1.3157

1.3188

b. What is the annual forward premium for all maturities?

Calculate the annual forward premium for all maturities below:(Round to four decimal places.)

	Days	Bid Rate	Ask Rate	Forward
Period	Forward	US$/	US$/	Premium
Spot	0	1.3245	1.3246
1 month	30	1.3243	1.3244		%

2 months

60

1.3241

1.3242

%

3 months

90

1.3237

1.3239

%

6 months

180

1.3228

1.3231

%

12 months

360

1.3206

1.3209

%

24 months

720

1.3157

1.3188

%

c. Which maturities have the smallest and largest forward premiums?(Select the best choice below.)

A.The 12-month forward rate has the smallest premium, while the 6-month forward possesses the largest premium.

B.The1-month forward rate has the smallest premium, while the 6-month forward possesses the largest premium.

C.The 6-month forward rate has the smallest premium, while the 2-month forward possesses the largest premium.

D.The 2-month forward rate has the smallest premium, while the 12-month forward possesses the largest pre