1. Why does most interbank currency trading worldwide involve the U.S. dollar?
2. Who are the market participants in the foreign exchange market?

1. Explain THREE (3) major functions of the foreign exchange market.
2. The foreign exchange market can be divided into two tiers. Identify and distinguish these two markets.
3. Explain and give an example of the following quotes:

bid quote

ask quote

3. The following exchange rates are available to you. (You can buy or sell at the stated rates.)

Fuji Bank 120.00/$

Rushmore Bank SF1.6000/$

Blanc Bank 80.00/SF

Assume you have an initial SF10,000,000. Can you make a profit via triangular arbitrage? Show steps and workings.

4. Base on the following quotes provided, determine if there is arbitrage using AUD1m. Show all your workings.

AUD 1.35/USD

SGD 1.35/USD

SGD 0.98/AUD

5. Assuming the following quotes, calculate how a market trader at Citibank with $1,000,000 can make an inter-market arbitrage profit (include the calculation for loss):

Citibank quotes U.S. dollars per pound:	$1.5400/
National Westminster quotes euro per pound	1.6000/
Deutsche bank quotes dollar per euro:	$0.9700/

6. On your post-graduation celebratory trip you are leaving Paris for St. Petersburg, Russia. You leave Paris with 10,000 in your money pouch. Wanting to exchange all of these for Russian rubles, you obtain the following quotes:

Spot rate $1.4260/

Spot rate Rbl 24.75/$

1. Calculate Rbl per cross rate?
2. How many rubles (Rbl) will you obtain for your euros?

7. The following are selling quotes for selected foreign currencies against the USD in New York:

ISO Code	Contract	Rates
CAD/USD	Spot	0.8437
	30-day	0.8417
	90-day	0.9395
JPY/USD	Spot	0.004684
	30-day	0.004717
	90 day	0.004781
CHF/USD	Spot	0.5139
	30-day	0.5169
	90-day	0.5315

An American business needs to pay 2 million yen and 50,000 Swiss francs to businesses abroad.

1. What are the US dollar payments to the respective countries?
2. Compute the indirect quote for the spot and the forward Canadian dollar.
3. What is an arbitrage transaction within the context of a foreign exchange?

1. Critically explain FOUR (4) factors that affect exchange rates in the long run.
2. The following bid-ask rates are offered by three banks:

		Bid	Ask
Bank P	GBP/USD	1.6000	1.6100
Bank Q	MYR/USD	0.2000	0.2020
Bank R	GBP/MYR	8.1000	8.2000

Calculate the triangular arbitrage by starting with USD100.

9. The following bid-ask rates are offered by three banks:

		Bid	Ask
Bank X	GBP/USD	1.2000	1.2300
Bank Y	USD/MYR	4.0000	4.1500
Bank Z	GBP/MYR	5.2300	5.2550

Calculate the triangular arbitrage by starting with GBP100