Question 6

(a) Suppose the following exchange rate are provided. Calculate the exchange rate

between Malaysian Ringgit and Thai Baht.

USD/MYR 3.4705

USD/THB 33.7150

(b) A TV costs $500 in the United States. The same TV costs S$353.10 in Singapore. If

purchasing power parity holds, calculate the spot exchange rate between SGD and

USD.

(c) Assume that interest rate parity holds and that 90-day risk-free securities yield 5% in

the United States and 5.3% in Hong Kong. In the spot market, HKD/USD 0.1296.

(i) Is the 90-day forward rate trading at a premium or a discount relative to the spot

rate?

(ii) Calculate the 90-day forward rate.

(d) The following bid-ask rates are offered by three banks:

Bid Ask

Bank A GBP/USD 1.6000 1.6100

Bank B MYR/USD 0.2000 0.2020

Bank C GBP/MYR 8.1000 8.2000

Calculate the triangular arbitrage by using MYR1.