Problem 1. The following quotes are given for CAD/EUR: 1.4530/14535, 15-10, 22-14,30-20

for the spot, one month, three months and six months forward contracts.

a) calculate the outright quotations and the spread for the spot rate and the 3-month forward contract.

b) how is the spread related to time to maturity of the forward contract?

c) determine the percentage premium/ discount of the Canadian dollar with respect to the euro for the 3 month ask rates (annualized).

Problem 2. Assume the following quotes:

Citibank: NOK/EUR8

National Westminster: DKK/EUR7.5

Deutsche Bank: NOK/DKK1.1

Assume that the trader has EUR 10,000,000. What profit can a trader make?

BUSI 3233 - Homework assignment #1 (based on chapters 1-5) Please keep four decimals for all FX rates, interest rates and rate of inflation, and two decimals for all dollar/foreign currency amounts. Note: each question contains references to corresponding chapter and, often, page numbers which cover similar or related example. Problem 1. The following quotes are given for CAD/EUR: 1.4530/14535, 1510, 22-14,30-20 for the spot, one month, three months and six months forward contracts. a) calculate the outright quotations and the spread for the spot rate and the 3month forward contract. b) how is the spread related to time to maturity of the forward contract? c) determine the percentage premium/ discount of the Canadian dollar with respect to the euro for the 3 month ask rates (annualized). Problem 2. Assume the following quotes: Citibank: NOK/EUR 8 National Westminster: DKK/EUR 7.5 Deutsche Bank: NOK/DKK 1.1 Assume that the trader has EUR 10,000,000. What profit can a trader make? Problem 3. The following information is given: forecast annual rate of inflation for Canada: 0.30% p.a. forecast annual rate of inflation for the US: 0.50% p.a. two-year interest rate Canada: 1.10% p.a. two-year interest rate U.S.: 0.32 % p.a. spot rate: CAD/USD 1.040 forward rate 2 years: CAD/USD 1.050 a) Make a prediction on the spot exchange rate in two years based on PPP, IFE, and FEP. b) Do the parity conditions hold? Problem 4. The following rates are given: Bid Ask CAD/EUR 1.3620 1.3630 CHF/EUR 1.2365 1.2370 Determine the bid and ask rate and the spread on the Canadian dollar against the Swiss franc. Problem 5. The current spot rate is EUR/GBP 1.1600 and the six-month forward rate is EUR/ GBP 1.16300. The six-month interest rate in the UK is 0.40% and the six-month interest rate in the Eurozone is 0.44%. What would the British interest rate have to be per annum so that there would be no arbitrage opportunity? (round up your answer to the 4th digit)