Exam 5: The Market for Foreign Exchange

In conversation,interbank foreign exchange traders use a shorthand abbreviation in expressing spot currency quotations.Consider a $/£ bid-ask quote of $1.9072-$1.9077.The currency dealer would likely quote that as _____.

You are a U.S.-based treasurer with $1,000,000 to invest.The dollar-euro exchange rate is quoted as $1.60 = €1.00 and the dollar-pound exchange rate is quoted at $2.00 = £1.00.If a bank quotes you a cross rate of £1.00 = €1.20 how can you make money?

A dealer in British pounds who thinks that the pound is about to depreciate

Which of the following are correct?

It is common practice among currency traders worldwide to both price and trade currencies against the U.S.dollar.In fact,2007 BIS statistics indicate that about _________ of currency trading in the world involves the U.S.dollar on one side of the transaction.

Bank dealers in conversations among themselves use a shorthand notation to quote bid and ask forward prices in terms of forward points.This is convenient because

Suppose you observe the following exchange rates: €1 = $.85; £1 = $1.60; and €2.00 = £1.00.Starting with $1,000,000,how can you make money?

Suppose you observe the following exchange rates: €1 = $1.50; £1 = $2.00.Calculate the euro-pound exchange rate.

Suppose that the current exchange rate is €0.80 = $1.00.The direct quote,from the U.S.perspective is

Suppose you observe the following exchange rates: €1 = $1.45; £1 = $1.90.Calculate the euro-pound exchange rate.

The current exchange rate is £1.00 = $2.00.Compute the correct balances in Bank A's correspondent account(s)with bank B if a currency trader employed at Bank A buys £45,000 from a currency trader at bank B for $90,000 using its correspondent relationship with Bank B.

Market microstructure refers to

Swap transactions

The $/CD spot bid-ask rates are $0.7560-$0.7625.The 3-month forward points are 12-16.Determine the $/CD 3-month forward bid-ask rates.

If the $/€ bid and ask prices are $1.50/€ and $1.51/€,respectively,the corresponding €/$ bid and ask prices are

Relative to the spot price the forward price will be

You are a U.S.-based treasurer with $1,000,000 to invest.The dollar-euro exchange rate is quoted as $1.50 = €1.00 and the dollar-pound exchange rate is quoted at $2.00 = £1.00.If a bank quotes you a cross rate of £1.00 = €1.25 how can you make money?

The AUD/$ spot exchange rate is AUD1.60/$ and the SF/$ is SF1.25/$.The AUD/SF cross exchange rate is _____.

The SF/$ 180-day forward exchange rate is SF1.30/$ and the 180 forward premium is 8 percent.What is the outright spot exchange rate?

Bank dealers in conversations among themselves use a shorthand notation to quote bid and ask forward prices in terms of forward points.Complete the following table: