Exam 5: The Market for Foreign Exchange

Consider the following spot and forward rate quotations for the Swiss franc. S($/SFr)= 0.85 F₁($/SFr)= 0.86 F₂($/SFr)= 0.87 F₃($/SFr)=0.88 Which of the following is true?

Consider a trader who takes a long position in a six-month forward contract on the euro.The forward rate is $1.75 = €1.00; the contract size is €62,500.At the maturity of the contract the spot exchange rate is $1.65 = €1.00.

The foreign exchange market closes

In conversation,interbank foreign exchange traders use a shorthand abbreviation in expressing spot currency quotations.Consider a $/£ bid-ask quote of $1.2519-$1.2523.The "big figure," assumed to be known to all traders is ________.

The dollar-euro exchange rate is $1.25 = €1.00 and the dollar-yen exchange rate is ¥100 = $1.00.What is the euro-yen cross rate?

The SF/$ spot exchange rate is SF1.25/$ and the 180 day forward premium is 8 percent.What is the outright 180 day forward exchange rate?

The bid price

Consider a U.S.importer desiring to purchase merchandise from a Dutch exporter invoiced in euros,at a cost of €512,100.The U.S.importer will contact his U.S.bank (where of course he has an account denominated in U.S.dollars)and inquire about the exchange rate,which the bank quotes as €1.0242/$1.00.The importer accepts this price,so his bank will ________ the importer's account in the amount of ________.

The current spot exchange rate is $1.45/€ and the three-month forward rate is $1.55/€.Based upon your economic forecast,you are pretty confident that the spot exchange rate will be $1.50/€ in three months.Assume that you would like to buy or sell €100,000.What actions would you take to speculate in the forward market? How much will you make if your prediction is correct?

Consider the balance sheets of Bank A and Bank B.Bank A is in London,Bank B is in New York.The current exchange rate is & pound;1.00 = $2.00.Show the correct balances in each account if a currency trader employed at Bank A buys £50,000 from a currency trader at Bank B for $100,000 using its correspondent relationship with Bank B. Bank A (London) 000s

	Assets				Liabilities and Equity
	OLD	NEW			OLD	NEW
£ deposit at B	£500			B's Eurodollar deposit	$850
$ deposit at B	$ 1,000			B's € deposit	£100
Cash in the Vault	£200			Other Liabilities	£300
Other Assets	£400			Owners Equity	£775
	-----	------			-------	-------
Total Assets	£1,600			Total Liabilities & Equity	£1,600

Bank B (NYC) 000s

	Assets				Liabilities and Equity
	OLD	NEW			OLD	NEW
Eurodollar Deposit at A	$850			B's Eurodollar deposit	£500
£ deposit at A	£100			B's € deposit	$1,000
Cash in the Vault	$200			Other Liabilities	$200
Other Assets	$1,000			Owners Equity	$50
	-----	------			-------	-------
Total Assets	£2,250			Total Liabilities & Equity	£2,250

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

Suppose a bank customer wishes to trade out of British pounds and into Swiss francs.

Consider the following spot and forward rate quotations for the Swiss franc. S($/SFr)= 0.85 F₁($/SFr)= 0.86 F₂($/SFr)= 0.87 F₃($/SFr)=0.88 Calculate the 3-month forward premium in American terms.Assume 30-360 pricing convention.

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?

A recent survey of U.S.foreign exchange traders measured traders' perceptions about how fast news events that cause movements in exchange rates actually change the exchange rate.The survey respondents claim that the bulk of the adjustment to economic announcements regarding unemployment,trade deficits,inflation,GDP,and the Federal funds rate takes place within

The Singapore dollar-U.S.dollar (S$/$)spot exchange rate is S$1.60/$,the Canadian dollar-U.S.dollar (CD/$)spot rate is CD1.33/$ and the S$/CD1.15.Determine the triangular arbitrage profit that is possible if you have $1,000,000.

Suppose you observe the following exchange rates: €1 = $1.50; ¥120 = $1.00.Calculate the euro-yen exchange rate.

USD equivulent Courtry BIB ASK Bwitzerlard (Frarc) CHF 0.7648 0.7652 Euro 1.4000 1.4200 What is the BID cross-exchange rate for Swiss Francs priced in euro? Hint: Find the price that a currency dealer will pay in euro to buy Swiss francs.

For a U.S.trader working in American quotes,if the forward price is higher than the spot price

USD equivalent Courtry BID ASK Carada (Dollar) 0.8653 0.8667 Euro 1.4000 1.4200 What is the BID cross-exchange rate for Canadian dollars priced in euro? Hint: Find the price that a currency dealer will pay in euro to buy Canadian dollars.