Quiz 6 – 1 PM

1 Oct 2023
1. The spot price of an asset is $100. To store this asset the owner has to pay $2
after nine months. The owner receives $3 as a benefit from this asset after six
months. The risk-free rate is 10%. What is the one-year arbitrage-free forward
price on this asset? John takes a short forward position on 10,000 units of the
asset. What is the value of the short contract for John at the end of eight
months if the risk-free rate and the asset price are unchanged?
2. Consider two currencies A and B. The spot exchange rate A/B = 100. The
current interest rate for Currency A is 12% and on Currency B is 2%. What is
the arbitrage-free exchange rate for a 1-year forward contract? Three months
into the contract the exchange rate and the interest rates are the same. What
is the value of forward contract for the party which is short on currency B?
3. Consider two currencies A and B. The spot exchange rate A/B = 100. The
current interest rate for Currency A is 12% and on Currency B is 2%. Someone
is willing to sign a one-year forward contract at 112. What arbitrage profit can
be made if the starting transaction is borrowing 100 units of A. Give your
answer in terms of currency A.
Quiz 6 – 2:30 PM
1 Oct 2023
1. The spot price of an asset is $200. To store this asset the owner has to pay $2
after nine months. The owner receives $3 as a benefit from this asset after six
months. The risk-free rate is 10%. What is the one-year arbitrage-free forward
price on this asset? John takes a short forward position on 10,000 units of the
asset. What is the value of the short contract for John at the end of three
months if the exchange rate is 205 and the risk-free rates are unchanged?
2. Consider two currencies A and B. The spot exchange rate A/B = 100. The current
interest rate for Currency A is 12% and on Currency B is 2%. What is the
arbitrage-free exchange rate for a 1-year forward contract? Nine months into the
contract the exchange rate and the interest rates are the same. What is the
value of forward contract for the party which is short on currency B?
3. Consider two currencies A and B. The spot exchange rate A/B = 100. The current
interest rate for Currency A is 12% and on Currency B is 2%. Someone is willing
to sign a one-year forward contract at 108. What arbitrage profit can be made if
the starting transaction is borrowing 1,000,000 units of B. Give your answer in
terms of currency B.