Zoom Tutorial - PS4

April 29, 2022

Q1

Dealer's Demand: Qd = 10 − 2.5Sb

Dealer's supply: Qs = 5 + 3.5Sa
Dealer's Sb Sa
S(x/y) xb xa
Buy: Demand for Dealer⇒ xb ≡ Sb

Sell: Supply for Dealer⇒ xa ≡ Sa

Customer's perspective:

Demand: Buys y @ xa ≡ Sa

Supply: Sell y @ xb ≡ Sb

Q2:

(CHF/AUD) is 0.8500 − 0.8580 ⇒ CHF, price of 1 AUD

t = 0 : A speculator believes that the Swiss franc will appreciate

buys CHF 1, 000, 000.
1 1
(AUD/CHF):
0.8580 − 0.8500 = 1.1655 − 1.1765 (AUD)
Speculator has take position in CHF, and hence CHF is the underlying

currency

AUD will be the base currency

t = 2 : (CHF/AUD) 0.8200 − 0.8280 ⇒ CHF, price of 1 AUD

SellCHF 1, 000, 000

1 1
(AUD/CHF):
0.8280 − 0.8200 = 1.2077 − 1.2195, (AUD)

AU D
Π = (1.2077 −1.1765) CHF × CHF 1, 000, 000 = AU D31, 200

Q3:

t=0: (USD/AUD) = 0.6925 − 0.6975 USD, price of 1 AUD

a short position on the Australian dollar: borrow and sell AUD at t=0, buy and

return at t=2

AUD is the underlying currency and USD is the base currency

1
Speculator Sell AUD: 0.6925 USD for 1 AUD

t = 2 :(USD/AUD) = 0.6526 − 0.6575. USD, price of 1 AUD

∴ AUD has depreciated.

Speculator Buys AUD: 0.6575 USD for 1 AUD

Π = (0.6925 − 0.6575)(U SD/AU D) × per unit of AUD

= 0.0350, 350 points