You have called your Forex dealer and asked for quotations USD/EUR on the spot, 1 month, 3-month and 6-month forward rates. The trader has responded with the following: USD 1.284/98 3/5 8/7 13/10 What does this mean in terms of dollars per euro? If you wished to buy spot euros, how much would you pay in dollars? If you wanted to purchase spot USD, how much would you have to pay in euro?

You have called your Forex dealer and asked for quotations USD/EUR on the spot, 1 month, 3-month and 6-month forward rates. The trader has responded with the following: USD 1.284/98 3/5 8/7 13/10 What does this mean in terms of dollars per euro? If you wished to buy spot euros, how much would you pay in dollars? If you wanted to purchase spot USD, how much would you have to pay in euro?

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter5: Currency Derivatives

Section: Chapter Questions

Problem 5ST

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Similar questions

Boisjoly Watch Imports has agreed to purchase 15,000 Swiss watches for 1 million francs at today’s spot rate. The firm’s financial manager, James Desreumaux, has noted the following current spot and forward rates: On the same day, Desreumaux agrees to purchase 15,000 more watches in 3 months at the same price of 1 million Swiss francs. What is the cost of the watches in U.S. dollars, if purchased at today’s spot rate? What is the cost in dollars of the second 15,000 batch if payment is made in 90 days and the spot rate at that time equals today’s 90-day forward rate? If the exchange rate for is 0.50 Swiss francs per dollar in 90 days, how much will Desreumaux have to pay (in dollars) for the watches?
In a recent e-news, you observe that the 6-month forward rate is $1.5031/Euro. Further, if you invest the dollar, it fetches you interest at the rate of 2% p.a. In comparison, the interest rate in Eurozone is 1% p.a. You also see that CAD 1.5513 are needed to purchase a Euro and CAD 1.332 are needed to buy a US$. Is it possible for you to make an arbitrage profit? If so, which arbitrage strategies will you employ and what will be the profit? Assume that interest rate parity holds and you have one million dollars available to conduct arbitrage.
A foreign exchange dealer in Kigali Rwanda provides quotes for the spot and 3 month forward rates for the RFr against the dollar. Bid (RFr/U$$) ask (RFr/U$$) Spot 4.0040 4.0200 3-month forward 3.9690 3.9888 Required: a. What would you receive in dollars if you sell RFr 5 million at the spot rate? b. What would it cost in dollars to purchase RFr 20 million forward 3 month? When would you make payment?
Q1-13 If a speculator observes that the current 3-month forward rate on Swiss francs is 20¢ = 1 franc, but he/she expects that the spot rate in 3 months will be 30¢ = 1 franc, then this speculator would now a. buy dollars on the forward market. b. buy francs on the forward market. c. sell francs on the forward market. d. buy francs on the spot market and simultaneously sell francs on the 3-month forward market if the current spot rate is 25¢ = 1 franc.
Your foreign exchange trader in the United States has quoted the following rates for the Swiss Francs spot, 1-month, 3-month, and 6 month: $0.5965/72 50/61 127/143 242/267 a. If/you wished to buy 1,000,000 3-month Swiss Francs, how much would you pay in dollars? b. If you wanted to buy 1,000,000 6-month dollars, how much would you pay in Swiss Francs? .C. In New York, three month treasury bills yield 11% per annum, Using ask quotes only for simplicity, calculate the yields on Swiss three-month bills.
You are the treasurer for ABC corporation. You just received a bill from your Italian supplier of Genoa salami for Eur1,000,000. The Euros are due in three months. 1- What is your underlying exposure? ( Are you long or short Euros before you think about hedging? You owe Euros) 2- If the EURUSD 3 month forward exchange rate is $1.15/EUR today. Tomorrow the EURUSD 3 month forward rate rises to $1.18/EURWhen you mark your books to market, what is the gain or loss on the underlying position?
Hedging using forward rates: Assume the hypothetical spot rate between the USD and GBP was 1.6187 USD per GBP. Suppose you are purchasing 200000 GBP worth of Scotch Whisky deliverable (product and payment) in 3 months with the contract set up between you and your supplier on Friday. How much is that shipment worth in USD. Assume that you want to hedge against exchange rate risk, and go to the bank. The financial specialist at the bank gives you the official 3 month forward rate at 1.6175 USD per GBP. What does that imply for your payment to the bank in 3 months to get the 200000 GBP? Assume the hypothetical spot rate between the JPY and USD was 101.25 JPY per USD. Suppose you are purchasing 2000000 JPY worth of microprocessors deliverable (product and payment) in 3 months with the contract set up between you and your supplier on Friday. How much is that shipment worth in USD. Assume that you want to hedge against exchange rate risk, and go to the bank. The financial specialist at the…
Hedging using forward rates: Assume the hypothetical spot rate between the USD and GBP was 1.6187 USD per GBP. Suppose you are purchasing 200000 GBP worth of Scotch Whisky deliverable (product and payment) in 3 months with the contract set up between you and your supplier on Friday. How much is that shipment worth in USD. Assume that you want to hedge against exchange rate risk, and go to the bank. The financial specialist at the bank gives you the official 3 month forward rate at 1.6175 USD per GBP. What does that imply for your payment to the bank in 3 months to get the 200000 GBP?
The current spot GBP/USD rate is 1.9455 and the three-month forward rate is 1.9173. Based on your analysis of the exchange rate, you are pretty confident that the spot exchange rate will be 1.9252 in three months. Assume that you would like to trade £5,000,000 in the forward market. What would be your speculative profit in dollar terms if the spot exchange rate actually turns out to be 1.9000. (USD, no cents)
Suppose you are expecting to receive a million british pounds in six months,and you agree to a forward trade to exchange your pounds for dollars. If the spot exchange rate and the 150day forward rate in terms of dollars per pound are $1.5861=£1 and $1.5832=£1,respectively. How many dollars will you get in six months?Is the pound selling at a discount or a premium relative to the dollar??
Hedging using forward rates: Assume the hypothetical spot rate between the JPY and USD was 101.25 JPY per USD. Suppose you are purchasing 2000000 JPY worth of microprocessors deliverable (product and payment) in 3 months with the contract set up between you and your supplier on Friday. How much is that shipment worth in USD. Assume that you want to hedge against exchange rate risk, and go to the bank. The financial specialist at the bank gives you the official 3 month forward rate at 101.18 JPY per USD. What does that imply for your payment to the bank in 3 months?
Credible Research sold a microchip to the Vausten Institute in Germany on credit and invoiced €10 million payable within half a year. Currently, the 6-month forward exchange rate is $1.10/€ and the foreign exchange advisor for Credible Research predicts that the spot rate is likely to be $1.05/€ in 6 months. (i) What would be the expected gain or loss from the forward hedging? (ii) As a decision-maker for Credible Research, would you suggest hedging this euro receivable? Please explain why or why not? (iii) what if the foreign exchange advisor anticipates that the future spot rate will be similar to the forward exchange rate quoted today. As the decision-maker would you propose hedging in this case? If yes or no why?