The following spot and 30-day forward quotes involving Japanese yen (), Euro () and United States dollars ($) are given:

Spot 30-day

110.37 197/$1 2025

1.4257 71/U.S.$1 3630

(a) Calculate the bid and ask yen cross rates on spot euro.

(b) There is a spot quote of 78.25 96/1. Compare this with the rates in part (a) above to determine whether or not an arbitrage opportunity exists. (You are not required to actually calculate any arbitrage profit or loss)

(c) Calculate the actual bid and ask rates for the 30-day forward /$ and /$ quotes.

(d) What is the forward premium or discount on buying 30-day US dollars against yen delivery if the actual spot quote of 78.25 96/1 is used?

(e) If a Japanese business is expecting to pay a large sum of euro in 30 days, explain how it can use a money-market hedge to lower the underlying transaction risk.