QUESTION 1

Assume you are a trader with Deutsche Bank. From the quote screen on your computer terminal, you notice that Dresdner Bank is quoting EUR/USD at 1.2511 and Credit Suisse is offering USD/CHF at 0.8856.

You learn that UBS is making a direct market between the Swiss franc and the euro, with a current EUR/CHF of 1.1043. (Ignore bid-ask spreads for this problem.)

Assume you have $5,000,000 with which to conduct the arbitrage. What is the profit or loss if you initially sell dollars for Swiss francs? (answer in USD, no cents)

Ans: ___________________________

QUESTION 2

Using the quotes from Exhibit 5.7, calculate the six-month forward cross-exchange rate for EUR/GBP (X.XXXX)

Ans: _________________

QUESTION 3

Using Exhibit 5.7, calculate the three-month forward premium or discount for the Euro versus the U.S. dollar. For simplicity, assume each month has 30 days. (X.XX%) or (-X.XX%)

Ans: ___________________

QUESTION 4

A bank is quoting the following exchange rates

AUD/USD = 0.73 25-35

USD/CHF = 0.92 20-30

An Australian firm needs to purchase Swiss francs. Calculate the cross-rate the bank will use.(X.XXXX)

Ans: _______________

QUESTION 5

Using Exhibit 5.7, calculate the six-month forward premium or discount for the Swiss franc versus the U.S. dollar. For simplicity, assume each month has 30 days. (X.XX%) or (-X.XX%)

Ans: __________________

QUESTION 6

A foreign exchange trader with a U.S. bank took a speculative long position of 9,000,000 when the GBP/USD was 1.3319. Subsequently, the exchange rate has changed to 1.3426.

If the position is closed now, what is the profit/loss arising from that trade? (USD, no cents)

Ans: ________________

QUESTION 7

Using the quotes from Exhibit 5.7, calculate the six-month forward cross-exchange rate for EUR/CHF (X.XXXX)

Ans: ____________________________

Question 8

The current spot GBP/USD rate is 1.9457 and the three-month forward rate is 1.9172. Based on your analysis of the exchange rate, you are pretty confident that the spot exchange rate will be 1.9243 in three months.

Assume that you would like to trade 3,000,000 in the forward market.What would be your speculative profit in dollar terms if the spot exchange rate actually turns out to be 1.9000.(USD, no cents)

Ans: _____________________

QUESTION 9

Assume you are a trader with Deutsche Bank. From the quote screen on your computer terminal, you notice that Dresdner Bank is quoting EUR/USD at 1.2460 and Credit Suisse is offering USD/CHF at 0.8854. You learn that UBS is making a direct market between the Swiss franc and the euro, with a current EUR/CHF of 1.1043. (Ignore bid-ask spreads for this problem.)

Assume you have $5,000,000 with which to conduct the arbitrage. What is the profit or loss if you initially buy Euros with your USD? (answer in USD, no cents)

Ans: _____________________________