Assume the quotes indicated below are from a dealer in the NY currency market. Forward prices are quoted as the absolute forward premium or discount (not percentage) in basis points (one basis point = .0001).

Part 1. Forward exchange rates

4 a. If the dealers spot market quotes for the Russian ruble are: 65.7120 65.7130, and the dealers 3-month forward quotes for the ruble are: 2003 2040, what are the dealers effective 3-month forward bid and ask prices for the Russian ruble?

Effective bid rate = 65.7120+0.2003 = $65.9123

Effective ask rate = 65.7130+0.2040 = $65.9170

b. If a customer were to enter a 3-month forward contract with this dealer to sell 1m to obtain US dollars, how many US dollars would the customer receive in three months?

The bid price should be used. The amount of $ to be received = 1000000/65.9123 = $15,171.68

5. If forward prices are used as an indicator of the likely increase or decrease in value of a currency, which of the foreign currencies above are expected to increase in value over the indicated time period, and which are expected to decrease in value?