Name: _Nguyễn Lan Hương Class:11CL2.

LT2

Ex6:

On August 1st, a customer engages in a forward contract to sell 1,000,000 USD by VND with following terms
and conditions:

- Contract forward rate is defined by IRP

- Maturity: 90 days
- At the contract time, the spot rate of USD/VND is 21000/21500
- Current annual interest rate of USD and VND are respectively 1-3% and 7-9%
a. Define P/L of the firm at maturity if the spot rate of USD/VND in the next 90 days will respectively be:
21000/50; 21390/50; 21500/50
b. Illustrate on a diagram
1+r T t
F=S x
1+ r C t
1+7 %x90 /360
F bid =21000 x =21208
1+ 3%x90 /360
P/L
- If S=21000 => Profit = (21208 – 21000)x1,000,000 = 208,000,000 VND
- If S=21390 => Loss = (21390 – 21208)x1,000,000 = 182,000,000 VND
- If S=21500 => Loss = (21500 - 21208)x 1,000,000 = 292,000,000 VND

Diagram: P/L (milVND)

208

0 21000 F=21208 21390 21500

S at maturity
-182

- 292

Exercise 1: Calculate forward exchange rate in 5 following situations:

1. Spot JPY/VND = 200.92/218.83 2. Spot RUB/VND = 380/30

JPY interest rate: 1%-2% per year RUB interest rate: 1.5%-2.5% per year
VND interest rate: 8%-10% per year VND interest rate: 7%-9% per year
a. 3-month F (JPY/VND) = ? a. 3-month F (RUB/VND) = ?
b. 6-month F (JPY/VND) = ? b. 6-month F (RUB/VND) = ?
3. Spot SGD/VND = 16,700/00 4. Spot AUD/VND = 16,150/750
SGD interest rate: 1.5%-3% per year AUD interest rate: 2%-3% per year
VND interest rate: 8%-10% per year VND interest rate: 8%-10% per year
a. 30-day F (SGD/VND) = ? a. 30-day F (AUD/VND) = ?
b. 60 day F (SGD/VND) = ? b. 60 day F (AUD/VND) = ?
5. Spot AUD/HKD = 7.0865/00
AUD interest rate: 3.25%-4.75% per year
HKD interest rate: 6%-7.5% per year
a. 30-day F (HKD/AUD) = ?
b. 60 day F (HKD/AUD) = ?
1. F(3months) of JPY/VND
1+ 8%x3 /12
bid F=200.92 x =203.92
1+ 2%x3 /12
1+10 %x3/12
ask F=218.83 x =205.43
1+1%x3 /12
F(6months) of JPY/VND
1+ 8%x6 /12
bid F=200.92 x =206.89
1+ 2%x6 /12
1+10 %x6 /12
ask F=218.83 x =209.92
1+1%x6 /12
2. 3-month F (RUB/VND)

1+ 7 %x3/12
bid F=380 x =384.25
1+ 2.5%x3/12

1+9 %x3/12
ask F=430 x =438.03
1+1.5 %x3/12

6-month F (RUB/VND)

1+ 7 %x6/12
bid F=380 x =388.44
1+ 2.5%x6 /12

1+9 %x6/12
ask F=430 x =446.00
1+1.5 %x6/12

3. 30-day F (SGD/VND)

1+ 8 %x30 /360
bid F=16700 x =16,769.41
1+ 3%x30 /360

1+10 %x30 /360

ask F=16800 x =16,918.85
1+1.5%x30 /360

60-day F (SGD/VND)

1+ 8 %x60 /360
bid F=16700 x =16,838.47
1+ 3%x60 /360

1+10 %x60 /360

ask F=16800 x =17,037.41
1+1.5%x60 /360

4. 30-day F (AUD/VND)

1+ 8 %x30 /360
bid F=16,150 x =16,217.12
1+ 3%x30 /360

1+10 %x30 /360

ask F=16,750 x =16,861.48
1+2%x30 /360

60-day F (AUD/VND)

1+ 8 %x60 /360
bid F=16,150 x =16,283.91
1+ 3%x60 /360
 1+10 %x60 /360
ask F=16,750 x =16,972.59
1+2%x60 /360

5. 30-day F (HKD/AUD)

x 30
1+3.25 %
360
bid F=1/7.0900 x =0.1405
x 30
1+7.5 %
360

x 30
1+ 4.75 %
360
ask F=1/7.0865 x =1.1410
x 30
1+ 6 %
360

60-day F (HKD/AUD)

x 60
1+3.25 %
360
bid F=1/7.0900 x =0.1401
x 60
1+7.5 %
360

x 60
1+4.75 %
1 360
ask F= x =0.1408
7.0865 x 60
1+6 %
360

Exercise 2:

1. A multinational company is going to 1+r T t

F=S x
hedge for an inflow of 100,000 USD in the 1+ r C t
1+8 %x90 /360
future. This firm engages in a forward contract to F ask=21,500 x 1+1.5 %x90 /360 =21848
buy USD by VND in the next 90 days with P/L
If S=21,625 => Loss = (21848 – 21625)x100,000 = 223,000 VND
current annual interest rate of USD and VND are If S=21875 => Profit = (21875 – 21848)x100,000 = 27,000 VND
If S=22,000 => Profit = (22,000 – 21848)x100,000 = 152,000 VND
respectively 1.5-2.5% and 6-8%. At the contract
If S=22,125 => Profit = (22,125 – 21848)x100,000 = 277,000 VND
time, the spot rate of USD/VND is
21,000/21,500. Define profit/ loss of the firm at
maturity if the spot rate of USD/VND in the next
90 days will respectively be: 20,933/21,625;
21,058/21,750; 21,183/21,875; 21,308/22,000;
21,433/22,125. Diagram?
2. An American exporter will receive an 1+r T t
F=S x
amount of 500,000CHF from a Swiss importer 1+ r C t
1+ 2.5%x3 /12
in the next 3 months. This American firm F bid =0.4880 x 1+2%x3 /12 =0.4886
engages in a forward contract to sell CHF for P/L
USD in the next 03 months with current annual If S=0.4748 => Profit = (0.4886 – 0.4748)x500,000 = 6,900 USD
If S=0.4848 => Profit = (0.4886 – 0.4848)x500,000 = 1,900 USD
interest rate of CHF and USD are respectively If S=0.4948 => Loss = (0.4948 – 0.4886)x500,000 = 3,100 USD
1.25-2.00% and 2.5-3.5%. At the time of signing If S=0.5048 => Loss = (0.5048 – 0.4886)x500,000 = 8,100 USD
If S=0.5148 => Loss = (0.5148 – 0.4886)x500,000 = 13,100 USD
(present), the spot rate of CHF/USD is
0.4880/20. Define profit/ loss at maturity if the
CHF/USD spot rate at maturity will respectively
be: 0.4686/0.4748; 0.4786/0.4848;
0.4886/0.4948; 0.4986/0.5048; 0.5086/0.5148.
diagram?
3. Customer is engaging in an Option 1+r T t
F=S x
contract (American type) to buy 350,000 USD 1+ r C t
1+10 %x180 /360
by VND in 180 days. Strike price is defined as F ask=20,500 x 1+1.5 %x180 /360 =21,365
180-day forward exchange rate with 135 o Strike price = Fask = 21,365

VND/USD premium. The current USD/VND o BP = Strike price + Premium = 21,365 + 135 = 21500
spot rate is 20,000/20,500. The USD and VND P/L
- If S=20,500 < F = 21,365
annual interest rate are respectively 1.5-2.5% => Don’t exercise
=> Loss = Premium = 135*350,000 = 47,250,000
and 7.5-10%. Define profit/ loss of this - If S=21,000 < F = 21,365
customer at maturity in the next 180 days if the => Don’t exercise
=> Loss = Premium = 135*350,000 = 47,250,000
spot rate at maturity of USD/VND will - If S=21,365 = F = 21,365
=> Don’t exercise
respectively be : 19,629/20,500; 20,129/21,000; => Loss = Premium = 135*350,000 = 47,250,000
20494/ 21,365; 20,629/21,500; 21129/22,000. - If S=21,500 > F = 21,365
=> Excercise
Define the Break-even point? Diagram? => Profit = (21,500 – 21,365 – 135) * 350,000
=0
- If S=22,000 > F = 21,365
=> Excercise
=> Profit = (22,000 – 21,365 – 135) * 350,000
= 175,000,000
P/L (mil VND F

175
Strike price
BP
S at maturity
20,500 21,000 21,365 21,500
0
22,000

47,25
4. Customer is engaging in an Option 1+r T t
F=S x
contract (American type) to sell 350,000 USD 1+ r C t
1+ 8%x120 /360
by VND in 120 days. Strike price is defined as F bid =20,000 x 1+ 2.5%x120 /360 =20,364
120-day forward exchange rate with 164 o Strike price = Fbid = 20,364

VND/USD premium. The current USD/VND o BP = Strike price - Premium = 20,364 - 164 = 20,200
spot rate is 20,000/20,500. The USD and VND P/L
- If S=20,000 < F = 20,364
annual interest rate are respectively 1.5-2.5% => Exercise
=> Profit = (20,364 – 20,000 – 164)*350,000 = 70,000,000
and 8.0-11%. Define profit/ loss at maturity if - If S=20,200 < F = 20,364
the spot rate at maturity of USD/VND will => Exercise
=> Profit = (20,364 – 20,200 – 164)*350,000 = 0
respectively be : 20,000/20,818; 20,200/20,982; - If S=20,364 = F = 20,364
=> Don’t exercise
20,364/21,146; 20,500/21,500/ 21,000/22,000. If S=20,500 > F = 20,364
Define the Break-even point? Diagram? => Dont excercise
=> Loss = 164 * 350,000= 54,750,000
If S=21,000 > F = 20,364
=> Dont excercise
P/L (mil =>
VND Loss = 164 * 350,000=54,750,000
F
70 Strike price

BP
0 20,364 20,500 21000
20000 20,200 S at maturity

57,4