Home » On a particular day, the spot exchange rate for the Thai baht was 31. On the same day, the 3-month forward exchange rate for the baht was 32.

On a particular day, the spot exchange rate for the Thai baht was 31. On the same day, the 3-month forward exchange rate for the baht was 32.

8. On a particular day, the spot exchange rate for the Thai baht was 31.80. On the same day, the 3-month forward exchange rate for the baht was 32.58. Was the Thai baht trading at a premium or discount? Given this information, what is the standard forward premium or discount for the Thai baht?

Spot exchange rate for the Thai baht = 31.80 (BT/$)

Three-month forward exchange rate for the Thai baht = 32.50 (BT/$)

When forward exchange rate is greater than spot exchange rate, currency is said to be trading at a premium. On the other hand, when forward exchange rate is less than spot exchange rate, currency is said to be trading at a discount. In given case, three-month forward exchange rate for the Thai baht is greater than spot exchange rate for the Thai baht. So, the Thai baht was trading at a premium.

Premium = 8.8%                                                            

The standard forward premium for the Thai baht is 8.8%.

9. For each of the following events, illustrate the demand for, and supply of, the Canadian dollar. Show how each event would affect the euro-per-Canadian-dollar equilibrium exchange rate.

(a) European savers desire to shift funds from euro-denominated financial assets to Canadian-dollar-denominated financial assets.

(b) European firms switch from buying minerals from Canadian firms to purchasing them from Russian firms.

10. Suppose that the two events described in question 8 (a, b) occur at the same time. Illustrate the effect on the supply of, and demand for, the Canadian dollar, and on the equilibrium exchange rate.

(i only need question 9 and 10)

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