Table 1: Foreign currency Forecasts: Source NAB September 28, 2020 Exchange rate forecast Dec-20 Majors Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 AUD/USD 0.74 0.76 0.77 0.77 0.78 0.79 0.80 0.80 NZD/USD 0.66 0.67 10.68 0.69 0.70 0.70 0.72 0.72 USD/JPY 103 103 100 100 100 99 98 98 EUR/USD 1.22 1.23 1.25 1.26 1.27 1.28 1.30 1.31 1.36 1.40 1.40 1.43 1.44 1.45 1.47 1.48 0.91 0.91 0.91 0.91 0.91 0.92 0.91 0.91 1.32 1.29 1.28 1.28 1.27 1.26 1.25 1.25 GBP/USD USD/CHF USD/CAD USD/CNY Australian Cross Rates AUD/NZD 6.70 6.60 6.55 6.50 6.45 6.40 6.35 6.30 1.13 1.13 1.13 1.12 1.11 1.12 1.11 1.11 AUD/JPY 76 78 77 77 78 78 78 78 AUD/EUR 0.61 0.61 0.62 0.61 0.62 0.62 0.61 0.61 AUD/GBP 0.54 0.54 0.55 0.54 0.54 0.54 0.54 0.54 AUD/CHF 0.67 0.69 10.70 0.71 0.71 0.72 0.73 0.73 AUD/CAD 0.97 0.98 0.99 0.99 0.99 0.99 1.00 1.00 AUD/CNY 4.96 4.99 5.04 5.03 5.05 5.04 5.06 5.04 Effective 28 September 2020 Question 1 (60 marks) You are given foreign currency forecasts for a number of currency pairs in Table 1. You are a forex trader and wish to use the forecasts for September 2021 to make a profit. Required (a) (i) Obtain spot rates for five currency pairs chosen from those listed in table 1. Please specify the date and time at which you obtained the quotes. (5 marks) ii)) Which currency pairs indicate profit opportunities if you buy at the spot rate indicated in your answer a) and sold at the predicted rate shown in table 1? (3 marks) iii) Which currency pair gives the highest rate of return? (2 marks) b) (i) Obtain forward rates for five chosen currency pairs from table 1 with a maturity of September 2021. (5 marks) (ii) Compare the forward rates obtained in b) (i) above to the predicted spot rate in Table 1. Assuming that the predictions in Table 1 are accurate, does it point to profit making opportunities? That is can you buy at the forward rate and sell at the forecast spot rate to make a profit? Alternately, can you sell at the forward rate and buy at the predicted spot rate to make a profit? Assume that you have AUD 1 million for the trade and show your profit calculations for three currency pairs. (15 marks) c) Choose three currency pairs with AUD on one side. Obtain the government interest rates for the three foreign countries on the other side of the forex quotes. Using this data in addition to those obtained in a) and b) above, verify if interest rate parity holds. You may draw additional data if required. (30 marks) Table 1: Foreign currency Forecasts: Source NAB September 28, 2020 Exchange rate forecast Dec-20 Majors Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 AUD/USD 0.74 0.76 0.77 0.77 0.78 0.79 0.80 0.80 NZD/USD 0.66 0.67 10.68 0.69 0.70 0.70 0.72 0.72 USD/JPY 103 103 100 100 100 99 98 98 EUR/USD 1.22 1.23 1.25 1.26 1.27 1.28 1.30 1.31 1.36 1.40 1.40 1.43 1.44 1.45 1.47 1.48 0.91 0.91 0.91 0.91 0.91 0.92 0.91 0.91 1.32 1.29 1.28 1.28 1.27 1.26 1.25 1.25 GBP/USD USD/CHF USD/CAD USD/CNY Australian Cross Rates AUD/NZD 6.70 6.60 6.55 6.50 6.45 6.40 6.35 6.30 1.13 1.13 1.13 1.12 1.11 1.12 1.11 1.11 AUD/JPY 76 78 77 77 78 78 78 78 AUD/EUR 0.61 0.61 0.62 0.61 0.62 0.62 0.61 0.61 AUD/GBP 0.54 0.54 0.55 0.54 0.54 0.54 0.54 0.54 AUD/CHF 0.67 0.69 10.70 0.71 0.71 0.72 0.73 0.73 AUD/CAD 0.97 0.98 0.99 0.99 0.99 0.99 1.00 1.00 AUD/CNY 4.96 4.99 5.04 5.03 5.05 5.04 5.06 5.04 Effective 28 September 2020 Question 1 (60 marks) You are given foreign currency forecasts for a number of currency pairs in Table 1. You are a forex trader and wish to use the forecasts for September 2021 to make a profit. Required (a) (i) Obtain spot rates for five currency pairs chosen from those listed in table 1. Please specify the date and time at which you obtained the quotes. (5 marks) ii)) Which currency pairs indicate profit opportunities if you buy at the spot rate indicated in your answer a) and sold at the predicted rate shown in table 1? (3 marks) iii) Which currency pair gives the highest rate of return? (2 marks) b) (i) Obtain forward rates for five chosen currency pairs from table 1 with a maturity of September 2021. (5 marks) (ii) Compare the forward rates obtained in b) (i) above to the predicted spot rate in Table 1. Assuming that the predictions in Table 1 are accurate, does it point to profit making opportunities? That is can you buy at the forward rate and sell at the forecast spot rate to make a profit? Alternately, can you sell at the forward rate and buy at the predicted spot rate to make a profit? Assume that you have AUD 1 million for the trade and show your profit calculations for three currency pairs. (15 marks) c) Choose three currency pairs with AUD on one side. Obtain the government interest rates for the three foreign countries on the other side of the forex quotes. Using this data in addition to those obtained in a) and b) above, verify if interest rate parity holds. You may draw additional data if required. (30 marks)