EURUSD is trading at 1.0850, US 3 month interest rates are 1.25% whilst Euro 3 month rates are 2.25%. The exchange rate for the long leg of a 3 month swap will be
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EURUSD is trading at 1.0850, US 3 month
interest rates are 1.25% whilst Euro 3
month rates are 2.25%. The exchange rate
for the long leg of a 3 month swap will be
Step by step
Solved in 2 steps
- The nominal yield on 6-month T-bills is 7%, while default-free Japanese bonds that mature in 6 months have a nominal rate of 5.5%. In the spot exchange market, 1 yen equals $0,009. If interest rate parity holds, what is the 6-month forward exchange rate?ATZ (US Company) expects to receive a 19 million euros in 90 days from a Australia customer. The current spot rate is S$1.836 per AUD, and the 90 day forward rate is S$1.638 per AUD. In addition, the annualized three-month AUD and USD interest rate 2.81% and 4.03%, respectively. What is the hedged value of the AUD receivable using the forward contract? How does that compare to a situation when the exchange rate remains unchanged at the spot rate?A currency swap has a remaining life of 12 months. It involves exchanging interest at 11% on £25 million for interest at 7% on $40 million once a year. The term structure of interest rates in both the United Kingdom and the United States is currently flat, and if the swap terms were negotiated today the interest rates exchanged would be 5.5% in dollars and 7.5% in sterling. All interest rates are quoted with annual compounding. The current exchange rate (dollars per pound sterling) is 1.7600. Calculate the current value of the swap to the party paying sterling using the bond valuation approach. What is the value of the swap to the party paying dollars? Calculate the current value of the swap to the party paying sterling by viewing the swap as a portfolio of forward contracts.
- Suppose the U.S. yield curve is flat at 4% and the euro yield curve is flat at 3%. The current exchange rate is $1.20 per euro. What will be the swap rate on an agreement to exchange currency over a 3-year period? The swap will call for the exchange of 1 million euros for a given number of dollars in each year.The current spot rate between the euro and dollar is €1.1023/$. The annual inflation rate in the U.S is expected to be 1.94 percent and the annual inflation rate in Euroland is expected to be 2.87 percent. Assuming relative purchasing power parity holds, what will the exchange rate be in two years?The current spot exchange rate is USD 1.55 / EUR, and the 3-month forward rate is USD 1.50 / EUR. Based on your analysis of the exchange rate, you are confident that the spot exchange rate will be USD 1.62 / EUR in 3 months. You would like to buy or sell EUR 1 million. What should you do in order to speculate in the forward market?
- The USD-GBP (Pound Sterling) exchange rate is 1.38. The USD interest rate is 2% per annum, and the GBP interest rate is 1% per annum. According to the Black-Scholes-Merton model, what is the price of a European call option on the exchange rate with a strike price of 1.50 and maturing after 18 months. The volatility of the exchange rate is 20%. The contract multiplier is 100. a. $9.90 b. $12.28 c. $11.67 d. $9.43 e. $10.96The current (spot) exchange rate is 1.2 dollars per euro, the 6-month forward exchange rate is 1.195 dollars per euro, the 6-month dollar interest rate is 1% per annum (continuous). The (no-arbitrage) 6-month euro interest rate (per annum continuous) is (a) 0.018% (b) 1.004% (c) 1.139% (d) 1.418% (e) 1.835%The Swiss Franc is trading at 1.1106 $/SFr, the euro is trading at 1.1268 $/euro. If you can buy or sell SFr/euro at 1.0160, is there an arbitrage? If so, how much can you make with one round-trip using $1,000,000?
- A currency swap has a remaining life of 8 months. It involves exchanging interest at 6% on £20 million for interest at 8% on $30 million every six months. The term structure of interest rates in both the United Kingdom and the United States is currently flat, and if the swap were negotiated today the interest rates exchanged would be 6% in dollars and 5% in sterling. All interest rates are quoted with continuous compounding. The current exchange rate (dollars per pound sterling) is 1.3900. What is the value of the swap to the party paying sterling? What is the value of the swap to the party paying dollars?The spot exchange rate between the Swiss Franc and U.S. dollar was 1.0404 ($ per franc). Interest rates in the U.S. and Switzerland were 0.65% and 0.20% per annum, respectively, with continuous compounding. 1.If there is no arbitrage opportunity, what is the three-month forward exchange rate ($ per franc)? 2.Suppose that the three-month forward exchange rate was 1.0300 ($ per franc). Is there an arbitrage? If so, construct the arbitrage that results in zero cash flow today and positive cash flow (in USD) in three months. 3.Calculate the arbitrage profit (in USD) when you implement the arbitrage strategy with 50 Swiss Franc.A currency swap has a remaining life of 15 months. It involves exchanging interest at 10% on £20 million for interest at 6% on $30 million once a year. The term structure of risk-free interest rates in the United Kingdom is flat at 7% and the term structure of risk-free rates in the United States is flat at 4% (both with annual compounding). The current exchange rate (dollars per pound sterling) is 1.5500. What is the value of the swap to the party paying sterling? What is the value of the swap to the party paying dollars?
