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What is the forward premium or discount

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Mr. Mehta was working in the foreign exchange market and was into calculation of forward premiums/ discount of currencies and also calculation of expected inflation rates in order to predict the movement of currency value. He wanted to teach the methodology of calculation to his subordinate using an example given below:

a. If one year interest rate in UK and Japan are 1.034% and 0.256% respectively; the spot exchange rate is 172.70 JPY/GBP. What is the forward premium or discount?

b. If the expected inflation rate in UK is 0.07%, what is the expected inflation rate in Japan?

Reference no: EM132364646

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