fin536_ex_3[1]

# fin536_ex_3[1] - calculate the mid-rate annual forward...

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Fin 350, Exercises 3, Ch6 FX Markets 1. (Spot Quotations) Two banks give the following quotes on the euro at the same time: Citibank NY \$1.1840-60/€ Barclays London: \$1.1820-38/€ (1) What types of quotes are from the banks (from the US’s perspective), direct or indirect? (2) What are the bid prices and ask prices of € from the banks? (3) What are the bid prices and ask prices of \$ from the banks? (4) Do you see a chance of profit from these quotes? 2. (Triangular Arbitrage) Assume the following quotes. Can you profit from them? If so, describe your steps and calculate your profit with \$1,000,000 investment. Citibank quotes \$1.92/£; UBS quotes €1.50/£; Deutsche Bank quotes \$1.15/€ 3. (Exchange rate changes) Calculate the percentage change in exchange rates. S1 S2 Change in Exchange Rates Peso4/\$ Peso10/\$ \$1.4/€ \$1.6/€ ¥120/\$ ¥100/\$

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Fin 350, Exercises 3, Ch6 FX Markets 4. (Forward rates) Using the following exchange rates between US\$ and Australian \$,
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Unformatted text preview: calculate the mid-rate, annual forward premium using the mid-rate, bid-ask spread for each maturity. Period Days Forward Bid Rate Ask Rate Mid-Rate Premium /Discount Bid-Ask Spread Spot 0.74140 0.74190 1 month 30 0.73983 0.74055 2 months 60 0.73871 0.73924 3 months 90 0.73752 0.73805 6 months 180 0.73412 0.73524 12 months 360 0.72870 0.73050 Question: What do you notice about the bid-ask spread as quotes evolve from spot towards forward 12 months? Why do you think this occurs? 5. (Synthetic Security) Talyor Inc, a small battery manufacturer in the U.S., wants to borrow 20 million Euros for 6 months. Because the company is almost unknown in Europe, it is unable to access the European money market directly. What would be the alternative given the following rates. The current spot rate is S(\$/€)=1.4; the six-month forward rate is F 6 (\$/€)=1.42; The six-month interest rate in the US is 5.2% per annum....
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## This note was uploaded on 09/06/2011 for the course FIN 536 taught by Professor Staff during the Spring '11 term at S.F. State.

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fin536_ex_3[1] - calculate the mid-rate annual forward...

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