Question
b) The exchange rate between the Ghana cedi (GHS) and the United States Dollar (USD) on Friday 21st July 2017 is 1 USD to 4.4450.
b) The exchange rate between the Ghana cedi (GHS) and the United States Dollar (USD) on Friday 21st July 2017 is 1 USD to 4.4450. The 6months interest rate for GHS is 12.9% whilst that of USD is 1.78%. i) How should the 6months forward rate between USD and GHS be quoted to avoid arbitrage? (5marks) ii) A company expects to pay USD 1m in 6months time for goods it is importing from China and is looking to hedge its exchange rate risk. Is it prudent for the company to buy USD 6months forward? Advise the company. (5 marks) iii) In just one sentence, define each of the following expressions a. Currency call option b. Triangular arbitrage c. The futures market d. The forward market e. Cross rate
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