Question
I am having some trouble with these problems from my textbook. Any help would be much appreciated. 1. Discuss the difference between a spot and
I am having some trouble with these problems from my textbook. Any help would be much appreciated.
1. Discuss the difference between a spot and a forward contract on a currency.
2 Suppose a quote for British pound ($/) in New York is $1.5350-60.
a. What is the implied quote for dollar (/$) in New York?
- How much will it cost to buy 500,000?
- How much will you get if sell 500,000?
3. If the reported exchange rate between the U.S. dollar and the Canadian dollar on a given day is C$1.2420/$ and it is changed to C$1.2480/$ after 10 days, what is the (annualized) percentage appreciation of $ against C$ and the (annualized) percentage depreciation of C$ against $ over the period.
4. The following are New York closing rates for C$/US$ and SFr/US$:
C$/$ = 1.2450; SFr/$ = 0.9350
(a) Calculate the cross rate for C$ in terms of SFr.
(b) If the C$ was trading at SF0.7500 in Zurich on the same day, was there an arbitrage opportunity? If so, show how arbitrageurs with C$ could have profited from this opportunity and calculate the arbitrage profits in C$ and in percent.
5 If interest rates in the U.S. and Canada are 5% and 6% respectively and the spot rate for dollar is C$1.4850, what is the 180-day equilibrium forward rate for US$? What is the forward premium/discount?
6 The treasurer of a Canadian company has C$1,000,000 to invest for 90 days. A 90-day U.S. commercial paper offers a yield of 5.00 percent. The present exchange rate of C$ is $0.8980. If the Canadian company decided to invest in U.S. commercial paper, what is the expected (annual) yield if the expected exchange rate of CS at the end of 90 days is $0.8890? (You will find an illustrative example for this type questions in the course content folder)
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