1. Foreign Exchange Quotations

Omni Advisors, an international pension fund manager, plans to sell equities denominated in Swiss Francs (CHF) and purchase an equivalent amount of equities denominated in South African Rands (ZAR). Omni will realize net proceeds of 3 million CHF at the end of 30 days and wants to eliminate the risk that the ZAR will appreciate relative to the CHF during this 30-day period. The following exhibit shows current exchange rates between the ZAR, CHF, and the U.S. dollar (USD).

Currency Exchange Rates:

ZAR/USD ZAR/USD CHF/USD CHF/USD

Maturity Bid Ask Bid Ask

Spot 6.2681 6.2789 1.5282 1.5343

30-day 6.2538 6.2641 1.5226 1.5285

90-day 6.2104 6.2200 1.5058 1.5115

a. Describe the currency transaction that Omni should undertake to eliminate currency risk over the 30-day period.

b. Calculate the following:

The CHF/ZAR cross-currency rate Omni would use in valuing the Swiss equity portfolio.

The value of Omni's Swiss equity portfolio in ZAR.

The annualized forward premium or discount at which the ZAR is trading versus the CHF (using ZAR as the base or target currency)