Question

the currency board on a local money market has the following information:- $ Spot rates 1.8101 - 1.8113, one month forward 0.22 - 0.18c pm, three months forward 0.62 - 0.58c pm. Show the spread after one and three month and convert $100,000 into sterling in one month.

Answer 1

1. one month forward is 0.22-0.18c pm the forward rate is high/low thus we deduct the forward rate from Spot Rate

One month Forward rate = (1.8101 - 0.22) - (1.8113 - 0.18)

One month Forward rate = 1.8079 - 1.8095

2. Three month forward is 0.62-0.58c pm the forward rate is high/low thus we deduct the forward rate from Spot Rate

Three month Forward rate = (1.8101 - 0.62) - (1.8113 - 0.58)

Three month Forward rate = 1.8039 - 1.8055

3. convert $100,000 into sterling in one month.

$ to Sterling = $100000 * 1.8079 = 180790

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