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Unformatted text preview: 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) Citibank quotes $1.92/£; UBS quotes €1.50/£; Deutsche Bank quotes $1.15/€. Can you profit from these rates? If so, describe your steps and calculate your profit in dollars as well as euros with $1,000,000 investment. 3. (Exchange rate changes) Calculate the percentage change in exchange rates. S1 S2 Change in Exchange Rates Peso4/$ Peso10/$ $1.4/€ $1.6/€ ¥120/$ ¥100/$ 4. (Forward transactions and hedging)A dealer sells £ 20,000,000 forward for dollars for delivery in three months at $1.5420/£. Analyze risk that the dealer is facing and provide a possible solution to hedge such risk. and provide a possible solution to hedge such risk....
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- Fall '11
- Forward contract, Forward price, FX Markets, Six-month Forward Rate, annual forward premium