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Ch06_SSol - 3-months forward and 6 months forward Problem...

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Problem 6.4 Zurich Trading Assumptions Values Spot exchange rate: Bid rate (SF/$) 1.2575 Ask rate (SF/$ 1.2585 One-month forward 10 to 15 3-months forward 14 to 22 6-months forward 20 to 30 a) Calculate outright quotes Bid Ask One-month forward 1.2585 1.2600 3-months forward 1.2589 1.2607 6-months forward 1.2775 1.2615 b) What do you notice about the spread? It widens, most likely a result of thinner and thinner trading volume. c) What is the 6-month Swiss bill rate? Spot rate, midrate (SF/$) 1.2580 Six-month forward rate, midrate (SF/$) 1.2695 Maturity (days) 180 6-month US dollar treasury rate (yield) 4.200% Solving for implied SF interest rate 6.450% Check calculation: the six-month forward 1.2719 You receive the following quotes for Swiss francs against the dollar for spot, one-month forward,
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Unformatted text preview: 3-months forward, and 6 months forward. Problem 6.7 Riskless profit on the franc Assumptions Values Beginning funds in Swiss francs (SF) 10,000,000.00 Mt. Fuji Bank (yen/$) 120.00 Mt. Rushmore Bank (SF/$) 1.6000 Matterhorn Bank (yen/SF) 80.00 Try Number 1: Start with SF to $ Step 1: SF to $ 6,250,000.00 Step 2: $ to yen 750,000,000.00 Step 3: yen to SF 9,375,000.00 Profit? (625,000.00) A loss. Try Number 2: Start with SF to yen Step 1: SF to yen 800,000,000.00 Step 2: yen to $ 6,666,666.67 Step 3: $ to SF 10,666,666.67 Profit? 666,666.67 A profit. Riskless profit on the Swiss franc. The following exchange rates are available to you. (You can buy or sell at the stated rates.)...
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Ch06_SSol - 3-months forward and 6 months forward Problem...

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