Question
Please show your calculations for each question. Assume the current U.S. dollar-British spot rate is 0.6993/$. If the current nominal one-year interest rate in the
Please show your calculations for each question.
Assume the current U.S. dollar-British spot rate is 0.6993/$. If the current nominal one-year interest rate in the U.S. is 5% and the comparable rate in Britain is 6%, what is the approximate forward exchange rate for 360 days?
a) | 0.6993/$ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
b) | 1.43/$ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
c) | 1.42/$ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
d) 0.7060/$
2) A foreign exchange trader at J.P. Morgan Chase, can invest $10 million, or the foreign currency equivalent of the bank's short term funds, in a covered interest arbitrage with Denmark. Using the following quotes of exchange rate and annual interest rate, can he/she make covered interest arbitrage (CIA) profit?
3) Assume the current U.S. dollar-yen spot rate is 90 /$. Further, the current nominal 180-day rate of return in Japan is 1% and 2% in the United States. What is the approximate forward exchange rate for 180 days?
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