On $30$ April $2024,$ ENMB Bank quoted the following spot exchange rate outright quotation and forward exchange rates $($in forward points$)$ for the USD $($in ZAR$/$USD quotation$).$

USD$/$ZAR exchange rates quoted by ENMB Bank on $30$ April $2024$:

Spot $($USD$/$ZAR$)$: Bid is $18\mathrm{.}2449$ and offer is $18\mathrm{.}9569$

$3-$month swap rate $($Forward value date: $30$ July $2024)$: Bid is $2249$ and offer is $2550$

$12-$month swap rate $($Forward value date: $30$ April $2024)$: Bid is $7900$ and offer is $9925$

Other important information

$$ Expected inflation rate in SA over the next $12$ months: $6\mathrm{.}25\%$

$$ Expected inflation rate in the US over the next $12$ months: $2\mathrm{.}75\%$

$$ The price of one Ford Mustang motor vehicle in the US: USD $30920$

$$ The price of one Ford Mustang motor vehicle in South Africa: ZAR $1142900$

$$ US $12-$month interest rate: $3\mathrm{.}50\%$ South African $12-$month interest rate: $9\mathrm{.}25\%$

$2\mathrm{.}1$ The exchange rate at which ENMB Bank is willing to sell the USD $12$ months forward is $\_\_\_\_\_?$

$2\mathrm{.}2$ How much will a customer of ENMB Bank $($called ABC Ltd$.)$ receive when selling USD$50000$ to ENMB Bank with a $3-$month forward contract?

$2\mathrm{.}3$ How much will ENMB Bank pay if it buys ZAR $15$ million from a client with a $12-$month forward contract?

$2\mathrm{.}4$ Calculate the spot $($ZAR$/$USD$)$ mid$-$rate. NB$!$ Note the quotation format.

$2\mathrm{.}5$ Calculate the $3-$month and $12-$month $($ZAR$/$USD$)$ mid$-$rates.

$2\mathrm{.}6$ Suppose a client, called XYZ Ltd$.,$ enters a $3-$month forex swap with ENMB Bank. The forex swap entails XYZ Ltd$.$ buying USD $1$ million from ENMB Bank spot and then selling it back $3$ months forward. What will the profit$/$loss for XYZ Ltd$.$ be on this $3-$month forex swap

Use spot and forward mid$-$rates $($as calculated in $2\mathrm{.}4$ and $2\mathrm{.}5)$ to calculate the answers to questions $2\mathrm{.}72\mathrm{.}11$

$2\mathrm{.}7$ Which currency is trading at a $3-$month forward discount? Calculate the applicable forward discount percentage $($annualised$).$

$2\mathrm{.}8$ What should the $12-$month forward mid$-$exchange rate $($USD$/$ZAR$)$ be according to the covered interest parity $($CIP$)$ equilibrium condition?

$2\mathrm{.}9$ Suppose we apply the Law of One Price $($LOP$)$ to a single product like a Ford Mustang motor vehicle $($see prices in Table $2\mathrm{.}1$ above$).$ What is the USD price of the Ford Mustang compatible with the LOP at the current spot mid$-$exchange rate?

$2\mathrm{.}10$ What is the ZAR$/$USD spot exchange rate compatible with the LOP, given the current USD and ZAR prices for the Ford Mustang?

$2\mathrm{.}11$ Use the LOP to determine if the ZAR is currently over or undervalued against the USD. Prove it by calculating the percentage over$/$undervaluation for the ZAR. Tip $1$: The LOP will indicate the $$should be$$ exchange rate, so compare that with the actual exchange rate. Tip $2$: focus is on the ZAR, so make the ZAR the base currency