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You are on page 1of 36

Step 1 of 2

a. Calculate the Brazilian reais/GTQ cross rate, multiply the euro/reais cross rate times to the

GTQ/euro cross rate; however, it is important to make sure when the two exchange rates are

multiplied that the reais are in the numerator and the GTQ in the denominator so that the euros

cancel out and the correct exchange rate will be found.

**Therefore, the Brazilian reais/GTQ cross rate is R$0.2118/GTQ1.
**

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Step 2 of 2

b. Multiply the number of Brazilian reais Isaac has at time of exchanging to the Brazilian

reais/GTQ exchange cross rate, to obtain the amount in GTQ he would have after exchange.

Therefore, the amount he would have is GTQ 21,246.46.

#10

Step 1 of 2

To determine whether the triangular arbitrage can be used to make profit, first find the cross rate

between the Swiss franc and the yen:

Therefore, the Japanese ¥/SF cross rate is ¥90.20/SF1.

**Because there is a disparity between the cross-rate calculated and given cross rate, therefore, a
**

profit can be made.

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o

Submit

Step 2 of 2

To make the profit using triangular arbitrage, first exchange the SF 12,000,000 for U.S. dollars

with the MR bank:

Next exchange the U.S. dollars for yen using the MF bank exchange rate:

Finally exchange the yen back to U.S. dollars using MB bank’s exchange rate:

Calculate the profit:

#12

Step 1 of 2

Given $1 million and the following quotes:

Bank C - $0.7551-61/€

Bank B - $0.7545-75/€

There are two different arbitrage strategies that can be attempted. The first is to buy euros from

bank B, and then sell them to bank C:

Buy euros Bank B:

Sell euros Bank C:

The profit/loss can be calculated by subtracting the original starting amount of dollars by the postarbitrage amount:

Provide feedback (0)

o

Submit Step 2 of 2 The second strategy involves buy euros from bank C and selling them to bank B: Buy euros Bank C: $ Sell euros Bank B: The profit/loss can be calculated by subtracting the original starting amount of dollars by the postarbitrage amount: In both instances a loss is made by the arbitrage. #13 Step 1 of 2 . The arbitrager cannot make a profit using these quotes.

Due to the change in the valuation of currency from fixed to floating the value of the currency has decreased which clearly indicates that is depreciation and not devaluation. From the given information. . the value of the currency is allowed to change according to the demand and supply for the currency in the market. Provide feedback (0) o Submit Step 2 of 2 (b) Calculate the percentage change: All variables are as per given information. the decrease in the currency value is because of the depreciation and not devaluation.Details about Venezuelan Bolivar (Bs) which was floated officially is provided in order to determine whether it was a depreciation or devaluation and to determine the percentage change in the value. a) Explain is this a devaluation or a depreciation: In this case. it is clear that the government of Venezuela has actually changed its currency from the fixed rate determined by the government to floating rate. Floating rate means.

8951%. The percentage change in the value is determined by subtracting the post float rate (ending rate) from the pre float rate (beginning rate) and then dividing the same by the post-float rate. use the following equation: . the forward premium is −2. the percentage change is determined using the below formula. #15 Calculate the forward premium in terms of foreign currency. #16 Step 1 of 1 Calculate the forward premium in terms of home currency.The give quote is an indirect quote. by the use of following equation: Therefore. Thus.

S.000 peso and closing price are provided for determining the value of the position.Therefore. by multiplying the peso-dollar exchange rate to the euro-dollar exchange rate. the forward premium is −3. dollars cancel out and the correct exchange rate will be found: Therefore. however.49/€. the investor will prefer to sell the peso futures. Chapter 8 1 Step 1 of 3 Details about the currency speculator who sells eight June future contracts for the 500.7975%. #17 Step 1 of 1 Calculate the Mexican peso/euro cross rate. it is important to make sure when the two exchange rates are multiplied that the pesos are in the numerator and the euros in the denominator so that the U.1 consists of details about the closing price. Exhibit 8. a) Calculation of value of the total position at the time of maturity: All variables are as per given information. In this case. Value of the total position at the time of maturity is determined by multiplying the negative notional amount with the difference between the spot and future exchange rate. . the Mexican peso-European cross rate is Ps16.

Future exchange rate is as per Exhibit 8.1 June Settlement Provide feedback (0) o Submit Step 2 of 3 b) Calculation of value of the total position at the time of maturity: .Number of contracts is given as 8. .

In this case. Number of contracts is given as 8. Future exchange rate is as per Exhibit 8. Provide feedback (0) o Submit Step 3 of 3 .10773/Ps.1 June Settlement $0. the investor will prefer to sell the peso futures.All variables are as per given information. Value of the total position at the time of maturity is determined by multiplying the negative notional amount with the difference between the spot and future exchange rate.

c) Calculation of value of the total position at the time of maturity: All variables are as per given information. the investor will prefer to sell the peso futures.10773/Ps. If in case. Future exchange rate is as per Exhibit 8. In this case. . #2 Step 1 of 8 The formula for the profit of a put option writer (Peleh) is if the spot rate is less than or equal to the strike price. Number of contracts is given as 8.1 June Settlement $0. the future exchange rate is greater than the given ending period spot exchange rate then the investor can be sure to generate profit and vice versa. it is clear that Amber purchases at the spot rate and sells at future exchange rate. Value of the total position at the time of maturity is determined by multiplying the negative notional amount with the difference between the spot and future exchange rate. From the above calculations.

000 Provide feedback (0) o . the option expires and the Peleh will keep the premium.000080/¥.009091/¥ (rounded to the nearest millionth of a dollar). and Peleh’s profit would be limited to the premium on this option. Peleh makes $0. or a total profit of $1. This is greater than the strike price. if the spot rate is greater than or equal to the strike price.After six months. the premium of per yen will be represented as Provide feedback (0) o Submit Step 2 of 8 An ending spot rate of ¥110/$ is equivalent to $0. For calculation purposes. In this case the buyer of the put would not exercise the option.

This is greater than the strike price. .000. Provide feedback (0) o Submit Step 4 of 8 An ending spot rate of ¥120/$ is equivalent to $0. and Peleh would earn a total profit of $1.008698/¥ (rounded to the nearest millionth of a dollar). Again. Again.008333/¥ (rounded to the nearest millionth of a dollar).000. the buyer of the put would not exercise the option. This is greater than the strike price. and Peleh would earn a total profit of $1.Submit Step 3 of 8 An ending spot rate of ¥115/$ is equivalent to $0. the buyer of the put would not exercise the option.

Provide feedback (0) o Submit Step 5 of 8 An ending spot rate of ¥125/$ is equivalent to $0. Provide feedback (0) o Submit .008000/¥ (rounded to the nearest millionth of a dollar).000. There is nothing to gain or lose by exercising the option. and Peleh would earn a total profit of $1. This is equal to the strike price.

007407/¥ (rounded to the nearest millionth of a dollar). and Peleh’s profit per yen sold follows the above formula. Provide feedback (0) o Submit Step 7 of 8 An ending spot rate of ¥135/$ is equivalent to $0.000228/¥. and Peleh’s profit per yen sold would be shown below: Peleh suffers a loss of $0. or a total loss of $2. The buyer would exercise the option. . The buyer would exercise the option. Step 6 of 8 An ending spot rate of ¥130/$ is equivalent to $0.850.007692/¥ (rounded to the nearest millionth of a dollar).

712. #3 . and Peleh’s profit per yen sold follows the above formula. The buyer would exercise the option.000513/¥. Peleh suffers a loss of $0.50.000777/¥.Peleh suffers a loss of $0.007143/¥ (rounded to the nearest millions of a dollar).412. or a total loss of $6.50. Provide feedback (0) o Submit Step 8 of 8 An ending spot rate of ¥140/$ is equivalent to $0. or a total loss of $9.

4700 25.0030 1. first subtract the spot minus the futures settle price: Use the difference to calculate what 5 bought contracts would be worth in US$: Provide feedback (0) o .4228 .4214 1.500 pounds and the following information: Maturity Open High Low Settle Change High Open Interest March 1.4550 809 a.0032 1.3980/£. Step 1 of 4 Given a contract of 62.4246 1.4146 1.605 June 1.4268 1.4162 .4164 1.4188 1. Given 5 contracts bought in June with a spot rate of $1.

4560/£. first subtract the spot minus the futures settle price: Use the difference to calculate what 12 sold contracts would be worth in US$: Provide feedback (0) o Submit Step 3 of 4 .Submit Step 2 of 4 b. Given 12 contracts sold in March with a spot rate of $1.

4560/£. first subtract the spot minus the futures settle price: Use the difference to calculate what 12 sold contracts would be worth in US$: Provide feedback (0) o Submit Step 4 of 4 d.3980/£. first subtract the spot minus the futures settle price: Use the difference to calculate what 12 sold contracts would be worth in US$: . Given 3 contracts bought in March with a spot rate of $1. Given 12 contracts sold in June with a spot rate of $1.c.

065 each in the future and immediately resell them for $0. the strike price for put/call is $0. If she does this.#4 Step 1 of 5 a. Person S’s break-even price on the call she plans to purchase from part (a) is calculated by adding the price of a call plus the premium for purchasing a call: Provide feedback (0) .65/S$ and the 90-day future is predicted to be $0. Given that Person S believes that the Singapore dollar is going to appreciate against the USD.70/S$.70/S$. they she will be able to purchase Singapore dollars for $0. Provide feedback (0) o Submit Step 2 of 5 b. she should buy a call on Singapore dollars.

break-even price is $ 0.o Submit Step 3 of 5 Therefore. Provide feedback (0) o Submit Step 4 of 5 .65046.

net profit is $ 0.00046.04954.c. Person S’s gross profit is calculated by subtracting the strike price from the spot rate: . Given the spot rate at the end of 90 days is $0. Given the spot rate at the end of 90 days is $0. Person’s net profit is calculated by subtracting the strike and premium price from the spot rate: Therefore. Provide feedback (0) o Submit Step 5 of 5 d.8000/S$. Person S’s gross profit is calculated by subtracting the strike price from the spot rate: Given the premium of $0.7000/S$.

1500.00046. The profit from this can be calculated by first converting the initial investment to euros using the 30-day forward rate: Then convert the euros back to US$ at the expected spot rate: The profit is calculated by subtracting the initial investment from the US proceeds: .000 Current spot rate ($/€) $1.3600/€. gross profit is $ 0. net profit is $ 0. Given the premium of $0.Therefore. Person CH should buy euros at the 30-day forward rate and at the end of the 30 days sell the euros for dollars in the market. Person S’s net profit is calculated by subtracting the strike and premium price from the spot rate: Therefore.3350 a.14954. #5 Step 1 of 2 Given information: Initial Investment $10.3358 30-day forward rate ($/€) $1. If the expected spot rate is $1.000.

Provide feedback (0) o Submit Step 2 of 2 b. Person CH should sell euros forward now at the higher rate.2800/€. The profit from this can be calculated by first calculating the euros bought in the market in 30 days. If the expected spot rate is $1. using the expected spot rate: Then calculate US proceeds or the amount in US$ of euros sold forward into US$: The profit is calculated by subtracting the initial investment from the US proceeds: .3350.28 and immediately fill the forward contract to sell the euros at $1. then in 30 days buy the euros on the market for $1.

6250 Provide feedback (0) o Submit Step 2 of 3 a.000 Current spot-rate (US$/Swiss franc) $.5640 Expected spot rate in 6 months (US$/Swiss franc) $.5820 6-month forward rate (US$/Swiss franc) $. Assuming a pure spot market speculation strategy. person CH’s profit can be calculated by first converting the initial investment into using the spot exchange rate: .#6 Step 1 of 3 Given the following information: Initial Investment $100.

This will take place 6-months from now.Then person CH would hold the Swiss Francs for 6 months and convert them back to US$ using the expected spot rate: The expected profit can be determined by subtracting the initial investment from the ending dollar amount: Therefore. Provide feedback (0) o Submit Step 3 of 3 b. expected profit is $7.388. . first convert the initial using the 6-month forward rate. Assuming person CH buys or sells investment into at a 6-month forward.32.

6250 Provide feedback (0) o .60. expected profit is $10. Chapter 7 5 Step 1 of 3 Given the following information: Initial Investment $100.5820 6-month forward rate (US$/Swiss franc) $.000 Current spot-rate (US$/Swiss franc) $.815.Then person CH exchange the SFr back for US$ at the expected spot rate: The expected profit can be determined by subtracting the initial investment from the ending dollar amount: Therefore.5640 Expected spot rate in 6 months (US$/Swiss franc) $.

person CH’s profit can be calculated by first converting the initial investment into using the spot exchange rate: Then person CH would hold the Swiss Francs for 6 months and convert them back to US$ using the expected spot rate: The expected profit can be determined by subtracting the initial investment from the ending dollar amount: Therefore.Submit Step 2 of 3 a.32. Assuming a pure spot market speculation strategy.388. Provide feedback (0) o . expected profit is $7.

000 and the following exchange rate quotes: . #7 Step 1 of 3 Given information $5.000. Assuming person CH buys or sells investment into at a 6-month forward.Submit Step 3 of 3 b. This will take place 6-months from now.815.60. Then person CH exchange the SFr back for US$ at the expected spot rate: The expected profit can be determined by subtracting the initial investment from the ending dollar amount: Therefore. first convert the initial using the 6-month forward rate. expected profit is $10.

80 180-day U.60 180-day Forward rate (¥/$) 117.S.800% 180-day Japanese yen interest rate 3. dollar interest rate 4.400% Determine Person T can make a profit by covered interest arbitrage or not: First determine either the difference in interest rates is greater than or less than the forward premium/discount: Change in exchange rates: Forward premium/discount: Provide feedback (0) o .Spot Rate (¥/$) 118.

000 (the equivalent of $5.S.000): Step 2: Convert ¥593.000 for $ using the spot rate. dollar 180-day interest rate: Provide feedback (0) o .Submit Step 2 of 3 Because the difference in interest rates is lesser than the forward premium/discount. dollar interest rate (the higher interest rate) in order to create a profit: Step 1: Borrow ¥593.000.000 using U. Step 3: Invest the $5. Person T will borrow yen and invest in the U.S.000.000.000.000.

Step 5: Calculate the amount owed on the Japanese loan by multiplying the original amount by the interest rate: Step 6: Determine profit made by subtracting the amount owed on the loan (Step 5) from the amount of yen made from investing in US dollar (Step 4) Person T can make profit of ¥55. .000 by using covered interest rate arbitrage.Submit Step 3 of 3 Step 4: Convert dollars amount back to yen to repay loan using 180 forward rates.

month interest rate 3. by first determining if the difference in interest rates is greater than or less than the forward premium/discount: Change in exchange rates: Forward premium/discount: Provide feedback (0) o .000 and the following information: Spot Rate (SFr/$) 1.000. Step 1 of 3 Given $1.month interest rate 4.2810 3-month forward rate (SFr/$) 1.800% Swiss Franc 3.200% Determine how Person C can make a profit off of covered interest arbitrage.2740 US-dollar 3.

000 using the spot rate Step 3: Invest the SFr1. Person C wants to borrow USD and invest in the Swiss Franc interest rate (the lower interest rate) in order to create a profit: Step 1: Borrow $1.281.000 using Swiss franc 3-month interest rate: Provide feedback (0) o .000.000.Submit Step 2 of 3 Because the difference in interest rates is less than the forward premium/discount.000 Step 2: Convert $1.

Person C can make profit of $1.Submit Step 3 of 3 Step 4: Convert Swiss Franc back to USD to repay loan using 90-day forward rate Step 5: Calculate the amount owed on the USD loan by multiplying the original amount borrowed by the US effective interest rate: Step 6: Determine profit made by subtracting the amount owed on the loan (Step 5) from the amount made from investing in kronor (Step 4).46 using covered interest rate arbitrage by making a CIA investment in the Swiss Franc. #16 Step 1 of 2 Given the following information: .538.

500% Expected inflation rate Unknown 1. Letting m represent the expected inflation for NY: Therefore. use the Fisher effect.669%. In addition the Fisher effect states: Let x represent the real interest rate in New York. In order to determine what inflation will be for Europe in the coming year.Assumptions London New York Spot exchange rate ($/€) 1. the expected inflation rate in Europe is 0.900% 4.3264 1-year Treasury bill rate 3.250% a. which states that real interest rates should be the same in New York and Europe. .3264 1. so that the equation will be as follows: Because of the Fisher effect the real interest rate for New York is the real interest rate in London.

3343/€. as follows: Therefore. .Provide feedback (0) o Submit Step 2 of 2 b. the 1-year forward exchange rate is $1. Estimate the 1-year forward exchange rate between the dollar and euro.

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