Exam 5: The Market for Foreign Exchange

Americar Terns Europearl Terms Bark Quotations Bid Ask Bid Ask British pounds \ 1.9712 \ 1.9717 £ 0.5072 £ 0.5073 Euros \ 1.4738 \ 1.4742 0.6783 0.6785 Using the table above,what is the bid price of euro in terms of pounds?

The €/$ spot exchange rate is $1.50/€ and the 120 day forward exchange rate is 1.45/€.The forward premium (discount)is

Intervention in the foreign exchange market is the process of

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

The world's largest foreign exchange trading center is

At the wholesale level,

Which of the following are 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 £1.00 = $2.00.Show the correct balances in each account 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. 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	$1,00			Owners Equity	$50
	-----	------			-------	-------
Total Assets	£2,250			Total Liabilities & Equity	£2,250

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?

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

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?

When a currency trades at a discount in the forward market

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.

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Country	U.S. $ equiv.		Currency per U.S. $
	Tuesday	Monday	Tuesday	Monday
Britain (Pound) £62,500	2.0000	1.9800	0.5000	0.5051
1 Month Forward	2.0100	1.9900	0.4975	0.5025
3 Month Forward	2.0200	2.0000	0.4950	0.5000
6 Months Forward	2.0300	2.0100	0.4926	0.4975
12 Months Forward	2.0400	2.0200	0.4902	0.4950
Euro £62,500	1.5000	1.4800	0.6667	0.6757
1 Month Forward	1.5100	1.4900	0.6623	0.6711
3 Month Forward	1.5200	1.5000	0.6579	0.6667
6 Months Forward	1.5300	1.5100	0.6536	0.6623
12 Months Forward	1.5400	1.5200	0.6494	0.6579

Using the table shown,what is the spot cross-exchange rate between pounds and euro?

Nondollar currency transactions

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

Suppose you observe the following exchange rates: €1 = $1.60; £1 = $2.00.Calculate the euro-pound exchange rate.

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 much money can an astute trader make?

As a rule,when the interest rate of the foreign currency is greater than the interest rate of the quoting currency,

The SF/$ spot exchange rate is SF1.25/$ and the 180 day forward exchange rate is SF1.30/$.The forward premium (discount)is