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Lect09-International Financial Markets-VineyChptr15

9524 09812 remember that customer always buys high

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Unformatted text preview: exchange rate: Suppose that for US dollars (per A$1) you Suppose are told that the spot rate is 0.9540 / 0. 9830 and the 3 months’ forward margin is –16 / –18 . . . –16 CUSTOMER BUYS US$ AND SELLS $A1 Spot rate 0.9540 0.9830 Forward margin 0.0016 0.0018 Forward rate less CUSTOMER SELLS US$ AND BUYS $A1 0.9524 0.9812 Remember that customer always buys high sells low. of base ccy ‘product;” In this case, customer buys 1 A$ by paying high at USD 0.9830 and sells1 A$ by receiving low at USD 0.9540. When Forward Margin is negative, forward rate < spot rate; when forward margin is +ve, forward rate > spot rate. 18 3. Cross Rates and Triangular Arbitrage and • Note that each exchange rate listed in the earlier Westpac Bank Retail Market Exchange Rate schedule involved the A$ as one of the two currencies. • If two non-A$ currencies are to be exchanged, then their spot exchange rate could be estimated indirectly by linking the two currencies via each of their exchange rates with a common third currency (here the A$). T...
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