Question
Forward and Spot currency exchange, simple examples bid-ask You want to buy a special medicinetoy from China that can cure Coronavirus. There is a one-year
Forward and Spot currency exchange, simple examples bid-ask
You want to buy a special medicinetoy from China that can cure Coronavirus. There is a one-year wait list, and the price is fixed at RMB 1MM. The current bid-ask spot rate is 6-7 RMB/USD, and the forward rate is 7-8 RMB/USD. U.S. interest rates are 10%, and Chinese rates are 20%, for borrowing or lending.
- What is the least amount of USD you need today to buy a risk-free medicinetoy in one year. Explain how step by step and show work
Due to a trade war, you can not buy or sell Chinese currency directly for USD. You can only borrow and lend USD at 10%, and cannot borrow or lend foreign currency. But, you may use Japanese forward contracts. The one-year bid-ask forward exchange rates are 100-110 JPY/USD, and 16-17 JPY/RMB.
- How can you get a special medicinetoy risk-free? How many USD do you need today? Explain steps and show them.
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Stats Data And Models
Authors: Richard D. De Veaux, Paul D. Velleman, David E. Bock
4th Edition
321986490, 978-0321989970, 032198997X, 978-0321986498
