Yen Forward. Use the following spot and forward bid-ask rates for the Japanese yen/U.S. dollar (/$) exchange rate from September 16, 2010, to answer the following questions:

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

b. Using the mid-rates, find the annual forward premium on the yen for all maturities? (Assume that the U.S. dollar is the home currency.)

c. Which maturities have the smallest and largest forward premiums?

Period

/$ Bid Rate

/$ Ask Rate

spot

85.95

85.99

1 month

85.56

85.61

2 months

85.43

85.47

3 months

84.90

84.93

6 months

83.65

83.69

12 months

83.36

83.40

24 months

82.32

82.37

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

Calculate the mid-rate for each maturity below:

(Round to three decimal places.)

	Days	Bid Rate	Ask Rate	Mid-rate
Period	Forward	/$	/$	/$
Spot	0	85.95	85.99	?

1 month

30

85.56

85.61

?

2 months

60

85.43

85.47

?

3 months

90

84.90

84.93

?

6 months

180

83.65

83.69

?

12 months

360

83.36

83.40

?

24 months

720

82.32

82.37

?

b. What is the annual forward premium on the yen for all maturities? (Assume that the U.S. dollar is the home currency.)

Calculate the annual forward premium for all maturities below:

(Round to three decimal places.)

	Days	Bid Rate	Ask Rate	Forward
Period	Forward	/$	/$	Premium
Spot	0	85.95	85.99
1 month	30	85.56	85.61	?	%

2 months

60

85.43

85.47

?

%

3 months

90

84.90

84.93

?

%

6 months

180

83.65

83.69

?

%

12 months

360

83.36

83.40

?

%

24 months

720

82.32

82.37

?

%

c. Which maturities have the smallest and largest forward premiums?

(Select the best choice below.)

A.

The 33-month forward rate has the smallest premium, while the 11-month forward possesses the largest premium.

B.

The 22-month forward rate has the smallest premium, while the 12-month forward possesses the largest premium.

C.

The 12-month forward rate has the smallest premium, while the 24-month forward possesses the largest premium.

D.

The 24-month forward rate has the smallest premium, while the 66-month forward possesses the largest premium.