1. Using the American term quotes from Exhibit 5.4, calculate the one-, three-, and six-month forward cross-exchange rates between the Australian dollar and the Swiss franc. State the forward cross-rates in Australian terms.

2. Using Exhibit 5.4, calculate the one-, three-, and six-month forward premium or discount for the Japanese yen versus the U.S. dollar using American term quotations. For simplicity, assume each month has 30 days. What is the interpretation of your results?

3. Doug Bernard specializes in cross-rate arbitrage. He notices the following quotes:

Swiss franc/dollar = SFr1.5971?$

Australian dollar/U.S. dollar = A$1.8215/$

Australian dollar/Swiss franc = A$1.1440/SFr

Ignoring transaction costs, does Doug Bernard have an arbitrage opportunity based on these quotes? If there is an arbitrage opportunity, what steps would he take to make an arbitrage profit, and how would he profit if he has $1,000,000 available for this purpose.

EXHIBIT 5.4 Exchange Rates Currencies June 5, 2013 US$ vs U.S.-dollar foreign-exchange rates in late New York trading Wed YTD chg Country currency n US$ Per USS US$ vs Europe Wed YTD che Country currency n USS Per US$ Czech Rep koruna 05076 9.700 3.6 Denmark krone 1756 5.6938 0.7 Americas Euro area euro 3092 7638 0.8 Argentina peso 1889 5.293 7.7 1-mos forward 3093 7638 0.8 Brazil rea 4700 2.1277 3.9 mos forward 3098 7635 0.8 Canada dollar 9668 0344 4.2 6-mos forward 3107 7629 0.8 Chile peso 001986 503.50 5.0 Hungary forint 00439 227.58 3.1 Colombia peso 0005263 1900.22 7.5 Norway krone 72 5.8103 4.4 Ecuador US dollar unch Poland zloty 3056 3.2726 5.8 Mexico peso 0778 2.8567 unch Russia ruble 03 105 32.2 5.6 Peru new sol 3696 2.705 6.3 Sweden krona 151 6.589 1.3 Uruguay peso 04959 20.1650 5.6 Switzerland franc 0614 942 2.9 Venezuela b. fuerte 57480 6.3500 46.0 1-mos forward 0617 9418 2.9 mos forward 1.0624 9412 2.9 Asia-Pacific 6-mos forward 1.0636 9402 3.0 Australian dollar 9542 0480 8.9 Turkey lira 5283 8928 6.1 1-mos forward 952 0503 8.2 UK pound 5405 649 5.5 3-mos forward 9482 0546 8.2 1-mos forward 5402 6493 5.2 6-mos forward 9425 1.0610 8.1 mos forward 5396 6495 5.2 China 1632 6.1274 1.7 yuan 6-mos forward 5389 6498 5.2 Hong Kong dolla 1288 7.7613 0.1 ndia 01759 56.855 3.4 rupee Middle East/Africa Indonesia rupiah 000102 9792 1.6 Bahrain dina 2.6525 3770 unch Japan yen 010094 99.07 14.2 Eeypt pound 6.9877 9.9 1-mos forward 010095 99.06 12.4 Israel shekel 2727 3.6668 1.7 3-mos forward 010099 99.02 12.5 Jordan dina 1.4123 708 0.3 6-mos forward 010106 98.95 12.5 Kuwait dinar 3.5080 285 1.4 Malaysia 3243 3.0835 0.9 egit rin 3.9 Lebanon pound 0006614 15 85 0.7 New Zealand dollar 7970 2547 Saudi Arabia riyal 2666 3.7504 unch Pakistan rupee 01015 98.495 1.3 South Africa rand 0999 100.0073 18.3 Philippines peso 0238 42.049 2.5 UAE dirham 2723 3.6730 unch Singapore dollar 8003 2496 2.3 Close Net Chg Chg YTD%Chg South Korea won 0008936 1119.02 5.2 Taiwan dolla 03339 29.953 3.1 SJ Dollar Index 73.30 0.20 0.27 5.46 Thailand baht 03274 30.547 0.1 Vietnam dong 00004774 20948 0.8 Sources The Wall Stree t Journal, Jun e 6, 20 p. C5, Reprinted by permission of The Wall Stree Journal, 2013 Dow Jon es & Compa ny, Inc. All Rights