Review Problems A Answer(1) - 3 Forward premium on CHF 1.24...

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BUS 631 International Finance and Banking Review Problems A Answer 1. Sell SGD and buy KRW with Singapore bank 1,000,000 x 888.81 = KRW888,810,000 Sell KRW and buy HKD with Korean bank 25 HKD6,495,7 83 . 136 000 , 810 , 888 Sell HKD and buy SGD with Hong Kong bank 77 SGD1,007,2 4488 . 6 725 , 495 , 6 Profit = SGD7,277 (1,007,277 - 1,000,000) 2. a. Maturity Bid Ask Spot 10.2605 10.2615 1-month forward 10.2545 10.2560 3-month forward 10.2433 10.2459 6-month forward 10.2265 10.2305 b. 1,000,000 x 10.2605 = HKD10,260,500 c. 2,000,000 x 10.2459 = HKD20,491,800
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Unformatted text preview: 3. Forward premium on CHF 1.24% = 6 12 x 1.1250 1.1250-1.1320 = Interest differential = 4% - 3% = 1% Since forward premium > interest differential, invest CHF. Arbitrage operations: Borrow USD for six months 000 USD1,020, ) 2 04 . 1 ( 000 , 000 , 1 Buy CHF spot 889 , 88 8 CHF 1250 . 1 000 , 000 , 1 Invest CHF for six months CHF902,222 ) 2 03 . 1 ( 889 , 888 Sell CHF 6-month forward 902,222 x 1.1320 = USD1,021,315 Profit = USD1,315 (1,021,315 – 1,020,000)...
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