APP1MontesdeOcaA

# APP1MontesdeOcaA - International Finance Instructor Dr Tim...

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International Finance Instructor: Dr. Tim Truitt Student: Alan Fernando Montes de Oca Noriega Application: Problem Set Toluca, Estado de México at Octuber 1st, 2011. Exercices: 1.- Calculate the one-, three-, and six-month forward cross-exchange rates between the Canadian dollar and the Swiss franc using the most current quotations. State the forward cross-rates in “Canadian” terms.

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Answer: F N (CD/SF) = F N (\$/SF)/F N (\$/CD) F 1 (CD/SF) = .9052/.9986 = .9065 F 3 (CD/SF) = .9077/.9988 = .9088 F 6 (CD/SF) = .9104/.9979 = .9123 2.- Restate the following one-, three-, and six-month outright forward European term bid- ask quotes in forward points. Spot 1.3431-1.3436 One-Month 1.3432-1.3442 Three-Month 1.3448-1.3463 Six-Month 1.3488-1.3508 Answer: One-Month 01-06 Three-Month 17-27 Six-Month 57-72 3.- Using the spot and outright forward quotes in problem 3, determine the corresponding bid-ask spreads in points. Spot 5 One-Month 10 Three-Month 15 Six-Month 20 4.- The current spot exchange rate is \$1.95/£ and the three-month forward rate is \$1.90/£. Based on your analysis of the exchange rate, you are pretty confident that the spot exchange rate will be \$1.92/£ in three months. Assume that you would like to buy or sell £1,000,000. a. What actions do you need to take to speculate in the forward market? What is the expected dollar profit from speculation? b. What would be your speculative profit in dollar terms if the spot exchange rate actually turns out to be \$1.86/£. Answer: a. If you believe the spot exchange rate will be \$1.92/£ in three months, you should buy £1,000,000 forward for \$1.90/£. Your expected profit will be: \$20,000 = £1,000,000 x (\$1.92 -\$1.90). b. If the spot exchange rate actually turns out to be \$1.86/£ in three months, your loss from the long position will be:
-\$40,000 = £1,000,000 x (\$1.86 -\$1.90). 5.- Omni Advisors, an international pension fund manager, plans to sell equities denominated in Swiss Francs (CHF) and purchase an equivalent amount of equities denominated in South African Rands (ZAR). Omni will realize net proceeds of 3 million CHF at the end of 30 days and wants to eliminate the risk that the ZAR will appreciate relative to the CHF during this 30-day period. The following exhibit shows current exchange rates between the ZAR, CHF, and the U.S. dollar (USD). Currency Exchange Rates:

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APP1MontesdeOcaA - International Finance Instructor Dr Tim...

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