Suppose we have a spot exchange rate of 0.8685 U.S. dollars per 1 Australian dollar. However, the 3-month forward rate is 0.8625 U.S. dollars per 1 Australian dollar. Calculate the premium or discount of the Australian dollar in the forward rate (calculate it at an annual % rate). Explain how this premium or discount can occur because of interest rates.

Suppose we have a spot exchange rate of 0.8685 U.S. dollars per 1 Australian dollar. However, the 3-month forward rate is 0.8625 U.S. dollars per 1 Australian dollar. Calculate the premium or discount of the Australian dollar in the forward rate (calculate it at an annual % rate). Explain how this premium or discount can occur because of interest rates.

 
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