Question

# Use the data table to answer questions 9, 10, and 11: EURUSD Spot Quotes Bank Bid...

Use the data table to answer questions 9, 10, and 11:

 EURUSD Spot Quotes Bank Bid Ask Citibank 1.1930 1.1935 HSBC 1.1935 1.1940 JP Morgan Chase 1.1925 1.1930 EUR/USD 6-month Forward Quotes Bank Bid Ask Barclays Bank 1.1870 1.1875 Royal Bank of Canada 1.1900 1.1905 6-month Interest Rates (annualized - simple interest) Bank Currency Interest Rate Bank of America U.S. Dollar 0.50% Deutsche Bank Euro 1.50%

10) Assume that you are a U.S. corporation and need to buy EUR 3,000,000 to cover an A/P due in 6 months. Of the two banks that have quoted the forward prices, which bank would you use for your transaction? How much money did you save your company by choosing this price as opposed to the other price?

U S Corporation need to buy EUR 3,000,000 to cover an A/P due in 6 months.

By considering the 6 months forward rate quoted by two banks Barclays Bank and Royal Bank of Canada, the payments for U S corporation after 6 months will be as follows

Barclays Bank EUR/USD 1.1870 - 1.1875

EUR 3,000,000 = USD (3,000,000/1.1870) = USD 2,527,380

Royal Bank of Canada EUR/USD 1.1900 - 1.10905

EUR 3,000,000 = USD (3,000,000/1.1900) = USD 2,521,008

I will prefer Royal Bank of Canada to buy EUR 3,000,000 at 6 months forward rate.

Amount of money saved by choosing Royal Bank of Canada over the other bank, Barclays Bank is

= USD 2,527,380 - USD 2,521,008 = USD 6,372

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