Question

1.Calculate the forward discount (or premium) for the following spot and three-month forward rates:

1)S = $2/£1 and F = $2.01/£1

2) S = $2/£1 and F = $1.96/£1

2.What would happen to the dollar/peso exchange rate if the interest rate increased in the US but remained unchanged in Mexico? Explain using the graph.

Answer #1

# exchange rate
1. Suppose the Federal Reserve Board unexpectedly decreases
interest rates in the United States. How will this action affect
the value of the dollar in the international dollar market?(Will
the dollar appreciate, depreciate or stay the same?) Graphically
show the impact on the international dollar market. Label all
curves and axis.
2)
Rate
Spot. 0.7570
1 month 0.7574
3 months. 0.7570
6 months. 0.7569
1 Year 0.7674
2 years. 0.7611
3 years. 0.7668
4 years. 0.7730
The...

Using the information below to calculate the three-, and
six-month forward premium or discount for US Dollar versus the
British Pound using European term quotations. Assume each month has
30 days.
UK
Pound
in
US$
per US$
Spot
1.1405
.8768
1-mos
forward
1.1402
.8770
3-mos forward
1.1396
.8775
6-mos
forward
1.1389
.8780

If the spot exchange rate is 0.62 euro per Canadian dollar and
the three-month forward rate is 0.60 euro per
Canadian dollar, then the ________ on the Canadian dollar in
percentage (at an annual rate) is roughly
________.
Select one:
a. forward premium, 3.226%
b. forward premium, 12.90%
c. forward discount, 12.90%
d. forward discount, 3.226%
The 1-year interest rates on Canadian dollar and U.K. pound are
2 % and 5 % respectively. If the current spot rate is 2...

Calculate the forward discount on the dollar (the dollar is the
home currency) if the spot rate is spot rate is $1.5800/£ and the
6-month forward rate is $1.5550/£.
&A: (4 decimal places) a) Percent premium is: b) Percent
forward premium is:

The following are the spot and forward bid and ask rates for the
Japanese yen/U.S. dollar (¥/$) exchange rate from January 20, 2011.
By referring to these rates, answer the following questions (the US
dollar is the home currency):
Period Yen/$ Bidrate Yen/$ Ask Rate spot 85.41 85.46
1 month 85.02 85.05
2 months 84.86 84.90
3 months 84.37 84.42
a) Calculate the mid-rate for these maturities
b) Calculate the annual forward premium for these maturities

Question 1
(a) Assume the following information:
Spot rate of £ = $1.60
180-day forward rate of £ = $1.59
180-day British interest rate = 4%
180-day U.S. interest rate = 3%
Based on this information, is covered interest arbitrage by U.S.
investors feasible (assuming that U.S. investors use their own
funds ($1 million))? Explain.
(b) Covered Interest Arbitrage in Both Directions. The one-year
interest rate in New Zealand is 6 percent. The one-year U.S.
interest rate is 10 percent....

1. Suppose the spot rate is $0.115 per Mexican peso and the
forward rate is $0.109 per peso. The 3 month Mexican interest rate
(annualized) is 18% and the 3 month US interest rate (annualized)
is 5%. Is there an arbitrage opportunity here? If not, explain how
you know. If so, how much could a US investor earn in 3 months in
the US versus 3 months in Mexico (starting with $100,000)? How
about a Mexican investor with 750,000 pesos...

a. If the USDGHS spot rate is 4.5000,
and its six-month forward rate has a forward premium of 7%. The
Chief financial officer of your MNC wants to know the one year
forward rate of the USD?.
b. If the spot rate of the USD is
GHS4.5850, find the periodic as well as the annualized forward
discount or premium if the 60-day forward rate is quoted as
GHS4.6100
c. Distinguish between the
following
a) Put Option and a swap
b)...

3. Trading in foreign exchange What are spot rates and forward
rates? Purple Panda Importers, a U.S. company, produces and exports
industrial machinery overseas. It recently made a sale to a
Japanese manufacturing firm for ¥689 million, but the Japanese firm
has 60 days before it must make the payment to Purple Panda
Importers The spot exchange rate is ¥128.75 per dollar, and the
60-day forward rate is ¥133.45 per dollar. Is the yen selling at a
premium or at...

3. Trading in foreign exchange
What are spot rates and forward rates?
Purple Whale Foodstuffs Inc., a U.S. company, produces and
exports industrial machinery overseas. It recently made a sale to a
Japanese manufacturing firm for ¥675 million, but the Japanese firm
has 60 days before it must make the payment to Purple Whale
Foodstuffs Inc. The spot exchange rate is ¥129.20 per dollar, and
the 60-day forward rate is ¥134.56 per dollar. Is the yen selling
at a premium...

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