Question 1 (1p):

Fill out the following table : I could not highlight in yellow so fill out wherever is written fill out

		How much is ____ in the other currency?
Quote language	Numeric Quote Value	40 USD	70 EUR	20 GBP	6550 JPY
USDEUR = 0.81	0.81	fill out	fill out	fill out	fill out
GBP/USD = 1.39	1.39	fill out	fill out	fill out	fill out
USD1 = JPY109	109	fill out	fill out	fill out	fill out

Question 2 (1p):

Derive cross rates by filling in the yellow cells in the following table: I could not highllight so wherever you see fill out should be filled out

Cross-rates given by the market
	Convert To
Convert From	USD	MXN	HUF	ZAR	TRY	PLN	CZK	INR
USD	Fill out	17.811	254.95	12.799	3.4044	3.5351	21.734	63.895
MXN	0.05615	Fill out	fill out	fill out	fill out	fill out	fill out	fill out
HUF	0.003922	fill out	fill out	fill out	fill out	fill out	fill out	fill out
ZAR	0.07813	fill out	fill out	fill out	fill out	fill out	fill out	fill out

Question 3 (1p):

Your dealer quotes USDSEK= 7.986/9. What is SEKUSD? (5 decimals)

	Bid	Ask
USDSEK	7.986	7.989
SEKUSD	Fill out	Fill out

Thus, SEKUSD = __Fill out________________________

How much does it cost you to buy SEK with dollars?

How many USD do you have to give the broker to get 1 SEK?

Question 4 (2p):

Your dealer has the following quotes:

USDEUR = 1.4000/01

EURJPY = 150.001/02

JPYUSD = .00472/77

If you start with 1M USD, and convert to EUR then JPY and back to USD, is there arbitrage?

Your dealer has the following quotes:

USDEUR = 1.4000/01

EURJPY = 150.001/02

JPYUSD = .00472/77

If you start with 1M USD, and convert to JPY then EUR and back to USD, is there arbitrage?

(Hint: You start by selling 1M USD for JPY. So what is USDJPY (bid)?)

If there are no transaction costs (e.g. no bid-ask spread), no (triangular) arbitrage implies that XXXYYY*YYYZZZ*ZZZXXX = 1.

Derive a similar relation if there is a bid-ask spread.

FORWARDS AND FX DERIVATIVES (5p)

Question 5 (1p):

The 1Y (1 year) forward price for stock in Collina Inc is $520. What is the payoff at expiration of the long and short positions in the forward for prices of $200, $300, $500 and $600? Fill the table and draw the payoff chart (payoff as function of stock price in 1Y)

Stock Price in 1Y	200	300	500	600
Payoff of short
Payoff of long

Question 6 (1.5p):

Rate	Spot Rate	3 Month
EURUSD	1.2331/33	73/74
USDJPY	109.29/31	-59/-58
GBPUSD	1.3920/22	50/51

What is the forward bid and ask prices for EURUSD? Is EUR at a premium or discount?

What is the forward bid and ask prices for USDJPY? Is USD at a premium or discount?

You call the bank and ask to buy GBP with USD in 3 months. What price are you quoted?

Question 7 (0.5p):

If you have debt in a foreign currency due in the future and you want to hedge the transaction exchange risk, you would

Buy the foreign currency forward

Sell the foreign currency forward

Speculate on the possibility to not hedge

Briefly explain your answer

Question 8 (2p):

UUU is a small US exporting firm. They recently closed a sales worth EUR 7 million and they are scheduled to receive this sum in 90 days. The EURUSD spot rate is 1.20 and the 90 day forward rate is 1.18.

What is the nature of UUUs transaction exchange risk?

Assume that UUU decides to hedge the risk with forwards. What position would they enter? What would be the cost today of this hedging strategy?

What is the minimum dollar revenue that UUU will receive if they hedge with forwards? What is the minimum if, instead, they dont hedge?