Question

The currency board on a local money market has the following information.

Currency      Spot rates            One month forward        Three months forward

US dollar     1.8101–1.8113       0.22–0.18c pm              0.62–0.58c pm

Euro           1.4366–1.4380       0.10–0.15c dis               0.32–0.40c dis

Jap.Yen     192.802–194.347      1.002–0.960y pm           2.234–2.171ypm

Required:

(a)show the spread after one and three months, and

(b)and convert the following into sterling:

(i)Receive $100,000 in one month;

(ii)Pay 40,000,000 yen in three months;

(iii)Pay €250,000 in one month;

(iv)Receive €40,000 in three months; and

(v)Pay $600,000 in one month.

Answer 1