(c) On your team, you also have a talented former trader Michael who is very

experienced with the foreign exchange markets. To show her skill she shows you the

Bloomberg screen with the following information:

Exchange rate: Spot

NZD/USD 1.51.6

NZD/GBP 2.22.3

JPY/USD 100101

JPY/GBP 150152

180-day Forward

NZD/USD 1.61.7

NZD/GBP 2.32.4

JPY/USD 9798

JPY/GBP 147149

Interest rates

USD 5%6%

NZD 8%9%

JPY 3%4%

GBP 7%8%

(simple, p.a.) 180 days

REQUIRED:

(i) Calculate the bid-ask spreads for JPY/USD and JPY/GBP spot markets and

state the units clearly. Why are they positive? How does the liquidity of JPY/USD

spot market compare to the liquidity of the JPY/GBP spot market?

[5 marks]9

Please turn over

(ii) Calculate the synthetic 180-day forward quotes for NZD/USD, NZD/GBP,

JPY/USD, and JPY/GBP.

[10 marks]

(iii) Given the above quotes, can Michael find any arbitrage opportunities or/and

shopping around opportunities?

(c) On your team, you also have a talented former trader Michael who is very

experienced with the foreign exchange markets. To show her skill she shows you the

Bloomberg screen with the following information:

Exchange rate: Spot

NZD/USD 1.51.6

NZD/GBP 2.22.3

JPY/USD 100101

JPY/GBP 150152

180-day Forward

NZD/USD 1.61.7

NZD/GBP 2.32.4

JPY/USD 9798

JPY/GBP 147149

Interest rates

USD 5%6%

NZD 8%9%

JPY 3%4%

GBP 7%8%

(simple, p.a.) 180 days

REQUIRED:

(i) Calculate the bid-ask spreads for JPY/USD and JPY/GBP spot markets and

state the units clearly. Why are they positive? How does the liquidity of JPY/USD

spot market compare to the liquidity of the JPY/GBP spot market?

[5 marks]9

Please turn over

(ii) Calculate the synthetic 180-day forward quotes for NZD/USD, NZD/GBP,

JPY/USD, and JPY/GBP.

[10 marks]

(iii) Given the above quotes, can Michael find any arbitrage opportunities or/and

shopping around opportunities?

(c) On your team, you also have a talented former trader Michael who is very

experienced with the foreign exchange markets. To show her skill she shows you the

Bloomberg screen with the following information:

Exchange rate: Spot

NZD/USD 1.51.6

NZD/GBP 2.22.3

JPY/USD 100101

JPY/GBP 150152

180-day Forward

NZD/USD 1.61.7

NZD/GBP 2.32.4

JPY/USD 9798

JPY/GBP 147149

Interest rates

USD 5%6%

NZD 8%9%

JPY 3%4%

GBP 7%8%

(simple, p.a.) 180 days

REQUIRED:

(i) Calculate the bid-ask spreads for JPY/USD and JPY/GBP spot markets and

state the units clearly. Why are they positive? How does the liquidity of JPY/USD

spot market compare to the liquidity of the JPY/GBP spot market?

[5 marks]9

Please turn over

(ii) Calculate the synthetic 180-day forward quotes for NZD/USD, NZD/GBP,

JPY/USD, and JPY/GBP.

[10 marks]

(iii) Given the above quotes, can Michael find any arbitrage opportunities or/and

shopping around opportunities?

(c) On your team, you also have a talented former trader Michael who is very

experienced with the foreign exchange markets. To show her skill she shows you the

Bloomberg screen with the following information:

Exchange rate: Spot

NZD/USD 1.51.6

NZD/GBP 2.22.3

JPY/USD 100101

JPY/GBP 150152

180-day Forward

NZD/USD 1.61.7

NZD/GBP 2.32.4

JPY/USD 9798

JPY/GBP 147149

Interest rates

USD 5%6%

NZD 8%9%

JPY 3%4%

GBP 7%8%

(simple, p.a.) 180 days

REQUIRED:

(i) Calculate the bid-ask spreads for JPY/USD and JPY/GBP spot markets and

state the units clearly. Why are they positive? How does the liquidity of JPY/USD

spot market compare to the liquidity of the JPY/GBP spot market?

[5 marks]9

Please turn over

(ii) Calculate the synthetic 180-day forward quotes for NZD/USD, NZD/GBP,

JPY/USD, and JPY/GBP.

[10 marks]

(iii) Given the above quotes, can Michael find any arbitrage opportunities or/and

shopping around opportunities?

(c) On your team, you also have a talented former trader Michael who is very

experienced with the foreign exchange markets. To show her skill she shows you the

Bloomberg screen with the following information:

Exchange rate: Spot

NZD/USD 1.51.6

NZD/GBP 2.22.3

JPY/USD 100101

JPY/GBP 150152

180-day Forward

NZD/USD 1.61.7

NZD/GBP 2.32.4

JPY/USD 9798

JPY/GBP 147149

Interest rates

USD 5%6%

NZD 8%9%

JPY 3%4%

GBP 7%8%

(simple, p.a.) 180 days

REQUIRED:

(i) Calculate the bid-ask spreads for JPY/USD and JPY/GBP spot markets and

state the units clearly. Why are they positive? How does the liquidity of JPY/USD

spot market compare to the liquidity of the JPY/GBP spot market?

[5 marks]9

Please turn over

(ii) Calculate the synthetic 180-day forward quotes for NZD/USD, NZD/GBP,

JPY/USD, and JPY/GBP.

[10 marks]

(iii) Given the above quotes, can Michael find any arbitrage opportunities or/and

shopping around opportunities?