Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

2. The following data are taken from the financial market pages of an Australian newspaper. Forward Margins Forward Contract Forward Margins (Buy A$/Sell A$) 1

2. The following data are taken from the financial market pages of an Australian newspaper.

Forward Margins

Forward Contract Forward Margins (Buy A$/Sell A$)
1 month 0/1
2 month 1/2
3 month 1/3
6 month 2/4
1 Year 0/1
2 Years -16/-8
3 Years -51/-11

The data under the Forward Margins column represent the forward contracts for the US dollar with respect to the Australian dollar (given in points form).

(a) Using this data, and the bid-ask for spot USD at 0.7144 to 0.7145, compute the outright bid/ask rates for the following forward contracts:

(i) 1 month

(ii) 6 month

(iii) 2 years

(iv) 3 years

(b) Calculate the forward premium for the following contracts:

(i) 2 month

(ii) 3 month

(iii) 6 month

(iv) 1 year

c) You expect to receive US$ 70,000 in 6 months. What amount in A$ will that convert into of you use the above forward rates?

d) You need to buy US$ 500,000 in 2 years. How many A$ will you need if you use the forward rates above?

e) What do the forward rates indicate in terms of whether the A$ is expected to strengthen or weaken with respect to the US dollar?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Digital Finance Big Data Start-ups And The Future Of Financial Services

Authors: Perry Beaumont

1st Edition

0367146797, 978-0367146795

More Books

Students also viewed these Finance questions

Question

What are values in relation to business?

Answered: 1 week ago

Question

Who holds the power in recruitment and selection?

Answered: 1 week ago

Question

Explain the effectiveness of various selection methods

Answered: 1 week ago

Question

Explain the nature of attraction in recruitment

Answered: 1 week ago