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The spot exchange rate of ETB/USD is 9.8600. The one-year interest rates of the U.S. Dollar and Ethiopian Birr are 3.23% and 6.50%, respectively.
The spot exchange rate of ETB/USD is 9.8600. The one-year interest rates of the U.S. Dollar and Ethiopian Birr are 3.23% and 6.50%, respectively. (a) What is the one-year outright forward of ETB/USD? (3 marks) (b) Calculate the swap rate. (2 marks) (c) Which rate, outright forward or swap rate, is more often quoted by banks? (1 mark) Why? (2 marks) (d) One year later, the spot becomes ETB/USD 10.434. What is the profit or loss if you had long a USD forward of 1 million? (3 marks)
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Step: 1
a To calculate the oneyear outright forward rate of ETBUSD we need to consider the interest rate differentials between the two currencies The formula ...
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Step: 2
Step: 3
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Derivatives Markets And Analysis
Authors: R. Stafford Johnson
1st Edition
1118202694, 978-1118202692
