Question

# Currency Spot quote Euro (EUR/USD) 1.1278 - 1.1281 British pound (GBP/USD) 1.2845 - 1.2848 Swiss franc...

 Currency Spot quote Euro (EUR/USD) 1.1278 - 1.1281 British pound (GBP/USD) 1.2845 - 1.2848 Swiss franc (USD/CHF) 1.0020 – 1.0022 Japanese yen (USD/JPY) 110.41 – 110.44 Dominican peso (USD/DOP) 50.540 – 50.600

Part 2. Forward exchange rates

1. If the 3-month forward bid and ask quotes for the British pound are 15 21, what are the 3-month forward bid and ask exchange rates?

2. How many US dollars will a customer that enters a 3-month forward contract to buy £1 million from this dealer pay when the contract is settled in three months?

3. If the 6-month forward bid and ask quotes for the Swiss franc are -13 -9, what are the 6-month forward bid and ask exchange rates?

4. How many US dollars will a customer that enters a 6-month forward contract to sell CHF 1 million to the dealer receive?

5. Based on the spot and forward exchange rates, indicated whether the pound and the Swiss franc are expected to strengthen or weaken over the next 3 and 6 months respectively?

 1) 3 month forward bid and ask quotes for the GBP are: Bid = 1.2845+0.0015 = 1.2860 Ask = 1.2848+0.0021 = 1.2869 2) \$ to be paid = 1000000*1.2869 = \$1286900 3) 6 month forward rate for Swiss franc: Bid = 1.0020-0.0013 = 1.0007 Ask = 1.0022-0.0009 = 1.0013 4) \$ to be received = 1000000*1.0007 = \$1000700 5) The pound is expected to strengthen as more dollars are required to be exchanged in future for 1 GBP than now. The Swiss franc is expected to weaken as lesser dollars are required to be exchange in future for 1 Sf than now.