Question

Find the most recent spot rates and forward rates of British pound, euro, and Yen. What...

  1. Find the most recent spot rates and forward rates of British pound, euro, and Yen. What each rate present? Why there are only a few currencies with available forward rates?

Homework Answers

Answer #1

Spot rate for British pound-1.2912

Forward Rate for British pound-1.29160

Spot rate for Euro-1.1067

Forward Rate for Euro-1.1069

Spot rate for Yen-108.4500

Forward Rate for Yen-108.457

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What is Spot Rate?

The spot rate is the amount one currency will trade for another
In simple words -it is the price one person has to pay another person in order to buy another currency
Its the way foreign exchange rates are expressed as the foreign currency per unit of the domestic currency or vice versa, and this enables investors to equate the price of a goods or a service in a common currency that can be used for business.

Foreign exchange spot market is prone to fluctuations and high volatility in the short-term because speculators often create noise around a currency and that affect the exchange rate. In some cases when the foreign exchange spot market fluctuates more, the government sometimes intervenes to adjust interest rates or to make transactions in the domestic currency, so the country is not in trading disadvantage with other countries.

Eg-

There is a US phone company that imports parts from China and Thailand.The US company will pay 10 billion yuan to the company from china and 8 billion Thai baht to the company from Thailand.
Today,Elizabeth who works for the US company uses today's exchange rate to convert chinese currency (yuan) and Thailand currency (Thai Baht) in US dollars
1 dollar=0.14 yuan therefore 10 billion chinese yuan = 10,000,000 x 0.14 = $1421080
1 dollar=00.033 thai baht therefore 8 billion Thai baht = 8,000,000 x 00.033 = $264980.
Therefore, the U.S. Company has to pay $1421080 and $264980 to Chinese company and Thailand company for parts

What is Forward Rate?

forward rate is an interest rate that is applicable to a financial transaction that will take place in the future. forward rates are calculated based on spot rates

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The answer to your third question is most countries do have forward rates that includes developed and developing countries

currencies with forward rate-
US dollar
Euro
Canadian dollar
Australian dollar
Swedish Krona
Indian Rupee
Thai Baht
New Zealand Dollar
Danish Krone
South Africa rand
Indonesian Rupiah
and many other countries as well

Around 51 countries have forward rate that I can confirm of

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