A trader enters into a short forward contract on 100 million yen. The forward exchange rate is $0.0090 per yen. How much does the trader gain or lose if the exchange rate at the end of the contract is (a) $0.0084 per yen; (b) $0.0101 per yen?

Q: Assume that the 3 months JPY Libor (market interest rate) is 0.25% p.a., the 3 months USD Libor is…

A: Interest rate parity = Spot rate * (1+Rate of interest of quoting currency / 1+Rate of interest of…

Q: An investor enters into a short forward contract to sell ¥50,000 for U.S. dollars at an exchange…

A: A forward contract is a kind of financial derivative contract which is a customized contract between…

Q: The SF/S 180-day forward exchange rate is SF1.30/S and the 180 day forward premium is 8 percent.…

A: The spot rate is the exchange rate on immediate purchase in the current market. The forward rate is…

Q: Incantieri sold a cruise ship to Disney Cruise Line, a U.S. company, and billed $1 billion payable…

A: Hedging: It is  a risk management strategy  to remove  losses in investments by taking an opposite…

Q: Suppose that two counterparties, A and B, enter a three-month forward contract on January 1st,…

A: Forward Contracts are the agreements between two parties at specific time in future for the exchange…

Q: In the spot market, P1 = 100 USD, 1 USD = 0.95 Yen, and 1 Yen = 5.50 British Pound. What is the…

A: The cross rate functions can be used to calculate the exchange rate of Peso and Pound

Q: Suppose the exchange rate between U.S. dollars and Swiss francs is SF 1.41 = $1.0o, and the exchange…

A: Exchange rate (ER) is a value at which 2 different currencies are exchanged or traded. ER is…

Q: Suppose you, a German importer, expect to pay $1 million in 90 days for taking delivery of import…

A:

Q: On Monday morning, a trader takes a long position in Australian dollars (AUD) future currency…

A: Profit or loss on the currency futures is the difference between the price at which the futures are…

Q: On Monday morning, a trader takes a long position in Australian dollars (AUD) future currency…

A: Profit or loss on the currency future is the difference between the price at which the future are…

Q: The Swiss Franc is trading at 1.1106 $/SFr, the euro is trading at 1.1268 $/euro. If you can buy or…

A: Arbitrary profit is the excess amount earned by using the mis-pricing in the market.

Q: What are spot rates and forward rates? Suppose you open the newspaper today and observe the…

A: Answer 1:The correct answer is “discount” in the forward market.Justification: This is because of…

Q: Suppose that the exchange rates between euro, U.S. dollar and the yen are given in the table below.…

A: Three point arbitrage opportunity took place by using three different currencies, it includes buying…

Q: An investor enters into a short forward contract to sell ¥50,000 for U.S. dollars at an exchange…

A: "Since you have posted a question with multiple sub-parts, we will solve the first three sub-parts…

Q: Suppose the risk free rate in pounds (£) is 5.71% and the risk free rate in US dollars ($) is 7.95%.…

A: The covered interest rate parity ensures the determination of future exchange rates without…

Q: A foreign exchange trader with a U.S. bank took a short position of £5,000,000 when the $/£ exchange…

A: Information Provided: Short position = 5,000,000 Prior exchange rate = 1.48 (dollar/pound)…

Q: On January 1, 2017, Roxan Company sold equipment to Mitsuko Company of Japan for ¥20,000,000 with…

A: On 01.01.2017, Raxon company sold equipment to Mitsuko company of Japan  Sale price = Y20000000…

Q: On December 1, 2020, Venice Company (a U.S.-based company) entered into a three-month forward…

A: Since Closing Forward rate is more than the Beginning Forward rate, it is Considered as an Asset .

Q: If spot rate is USD 2.5968/OMR and interst rate for OMR is 5% per annum . One year forward exchange…

A: If interest rate parity exists than exchange rate should reflect change in interest rate and must be…

Q: In the spot market, P1 = 100 USD, 1 USD = 0.95 Yen, and 1 Yen = 5.50 British Pound. What is the…

A: Exchanges rates are those rates in which currency of one country can be exchanged with another…

Q: Incantieri sold a cruise ship to Disney Cruise Line, a U.S. company, and billed $1 billion payable…

A: As per our guidelines, we are supposed to answer only 3 sub-parts (if there are multiple sub-parts…

Q: Consider a trader who takes a long position in a six-month forward contract on the euro. The forward…

A: Forward rate: $1.75 = €1 Contract size = €62500 Spot exchange rate at the maturity: $1.65 = €1

Q: ABC Corporation agreed that it will buy 1,000 USD at an exchange rate of P52 one month from now. The…

A: Transaction amount = $ 1000 Agreed exchange rate = P 52 Actual exchange rate = P 54

Q: Suppose the exchange rate between the U.S. dollar and the EMU euro is€0.80 = $1.00 and the exchange…

A: A cross rate is the money exchange rate between 2 currencies if the nation where the exchange rate…

Q: (a) Determine the cross rate for ARS/OMR? (b) If you wanted to exchange ARS 20,000, how much OMR…

A: Cross Rate = The Exchange Rate between two currencies is calculated using the third currency which…

Q: Market conditions are as follows; Exchange rate is USD 1 = JPY 130.00. USD market interest rate is…

A: The capital budgeting is a technique that helps to analyze the profitability of the project and…

Q: A currency trader observes that in the spot exchange market, 1 U.S.dollar can be exchanged for 3.58…

A: The requirement is to calculate the cross exchange rate between the two currencies. To calculate the…

Q: A currency trader observes that in the spot exchange market, 1 U.S. dollar can be exchanged for 3.5…

A: You have to find out cross rates between two currencies.

Q: ABC’s payoff on the forward contract is closest to:

A: Forward Contract: It is an over-the-counter contract between two parties agreeing to purchase or…

Q: f 1,026,000 Polish zlotys (PLN). Mertag enters into a forward contract on October 1, 2020 lanuary…

A: Forward contract: Forward contract can be defined as the agreement between two parties i.e. buyer…

Q: Calculate the net cost to counterparty A, before transaction costs

A: Information Provided: AUD/USD 1.7662 (3-month forward contract) AUD/USD 1.8000 from counterparty C…

Q: A U.S. firm must repay a loan in Canadian dollar (CAD), principal plus interest totaling 50,000 CAD,…

A: Hi, since you have posted a question with multiple sub-parts, we will answer only the first three,…

Q: Assume that 1 U.S. dollar can be exchanged for 105 Japanese yen or for 0.80 euro.What is the…

A: Exchange rate the rate at which currency of one country can be exchanged for other currency. These…

Q: On April 10, the annualized six-month Aussie dollar rate in the Sydney market was 2.98％, the…

A: Borrowing =$1 million dollars  Will get  Australia dollars =$ 1 x 1.0689 Australia dollars…

Q: Duck Corporation "forecasted" on December 21, 2020 to sell a machine to a company in Italy. The…

A: A forward contract is a type of derivative instrument which is used to hedge against risk. The…

Q: Suppose you are expecting to receive a million british pounds in six months,and you agree to a…

A: $1.5832=£1, means give one pound and take $1.5832. Here pound has been taken in the base currency…

Q: The current spot exchange rate is $1.22/€ and the three-month forward rate is $1.30/€. You enter…

A: Three month forward rate = $1.30/€ Spot exchange rate at maturity = $1.50/€

Q: Suppose the risk free rate in pounds is 5.12% and the risk free rate in US dollars is 7.71%. The…

A: The no-arbitrage exchange rate will be computed by using the current exchange rate, the risk-free…

Q: Suppose the spot rate of the yen today is $0.0100 while the three-month forward rate is $0.0096. How…

A: The spot rate is lower than the forward rate, implying that the currency is trading at a premium.…

Q: On December 12, 2022, Tin Company entered into a forward exchange contract to purchase 500,000 euros…

A: Companies use the forward contracts to hedge the position in spot market and gain or loss depends on…

Q: The current spot exchange rate is AUD 1.00 = USD 0.80. The Australian risk‐free rate is 3.0%  p.a.…

A: We have use interest rate parity theorem to get it.

Q: ABC Co. expects a payment from an American customer in 30 days. To hedge its currency exposure, ABC…

A: Solution:- Forward means entering into an agreement to sell or buy something on a future date at…

Q: Suppose that the following exchange rates are current: 1 US$ = 61.42 Indian Rupees, 1 Japanese Yen =…

A: Point Currency Rate Currency Equals Rate Currency A ₹/$ 1 $ = 61.42 ₹ B ₹/¥ 1 ¥ = 0.57 ₹ C ¥/$…

Q: Suppose a bark customer with CIO00,000 wahes to trade out of euro and into lapanese ven. The…

A: In this Question customer First customer needs to convert the Euros into Dollars and then needs to…

Instruments of Foreign Exchange Market

Foreign exchange is a worldwide market in which one nation’s currency is converted into another nation’s currency. In further terms, exchanging of nations currency with foreign currencies. Foreign exchange happens at a specified rate which is termed the foreign exchange rate. The exchange rates are not constant continuously changing as they are derived by market forces of supply and demand. Widely used foreign currencies are the United States- dollar, Euro, Japanese Yen, British pound, and Australian dollar. US- dollar is the most denominated foreign currency. The Euro to US dollar is a widely used currency pair in the forex market as these two currencies represent the world’s enormous economy. Forex trade is simple as exchanging currencies at the bank. The main players of forex markets are the central banks, financial institutions, intermediaries, investments banks, and other banks. Central Bank is the supreme player who decides the currency value of their own nation on the forex market. Mostly foreign exchange-traded at FX market (forex market) when tourists’ visits a foreign country, import, and export happens between two countries.