Problem_Set_1_amended

Problem Set 1

1. Direct and Indirect Quotes. For a person residing in New Zealand, indicate

whether each of the following are direct or indirect quotes.

1.2775 NZD/CAD 81.14JPY/NZD

6.1617 HKD/NZD 1.9406NZD/EUR

0.9116NZD/SGD 0.3925GBP/NZD

0.1580NZD/ZAR 0.8097CHF/NZD

0.7918USD/NZD 1.1701NZD/AUD

2. American and European Terms. Indicate whether the following foreign

exchange rates are in American or European terms:

0.7608USD/NZD 0.9616USD/AUD

6.8622CNY/USD 1.0200CHF/USD

1.9916USD/GBP 106.45JPY/USD

1.5751USD/EUR 1.6057BRL/USD

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10.3228MXN/USD 23.4497RUB/USD

3. Forward Points.

1.3431-1.3436 1.3432-1.3442

1.3448-1.3463

Spot

One-Month Three-Month Six-Month a.

1.3488-1.3508

Restate the following one-, three-, and six-month outright bid-ask quotes of

EUR/GBP in forward points.

b. 4.

Determine the corresponding bid-ask spreads in points

Forward Discount/Premium. Given below are the spot and forward quotes

of NZD/EUR. Compute the forward discount / premium for each maturity. Assume NZ is the ‘home’ country.

Spot

2.0800 2.0870

2.0994

One-Month Three-Month One-Year 5.

2.1426

Bid-Ask Quotes. ASB had the following quotes for USD/NZD:

Ask: 0.5727

Bid: 0.5380

Compute the NZD/USD Bid and Ask quotes. 6.

Percentage Change in Spot Rates. The spot value of the NZD with respect

to USD changed from 0.7917 USD/NZD to 0.7608. Compute the percentage change in spot rate. Assume NZD is the ‘home’ country.

7.

Percentage Change in Forward Rates. The one-month forward rate of

NZD/ GBP changed from 2.5478 NZD/GBP to 2.6179. Compute the percentage change.

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Assuem NZ is the ‘home’ country.

8.

Calculation of Cross-Rates. The spot rate of JPY with respect to GBP is

211.393 JPY/GBP. The spot rate of GBP/EUR is 0.7909.

a. b. 9.

Compute the JPY/EUR cross-rate. Compute the EUR/JPY cross-rate.

Cross-rate Bid-Ask Quotes. National Bank quotes the following rates for

the Euro and Yen:

EUR/NZD Bid: 0.5153 JPY/NZD Bid: 81.14

Ask: 0.5168 Ask: 81.32

Calculate the bid/ask quotes for JPY/EUR.

10. Riskless profit on the franc. The following exchange rates are available to

you: Mt. Fuji Bank ¥120.00/$, Mt. Rushmore Bank SF1.6000/$, Matterhorn Bank ¥80.00/SF. Assume you have an initial SF10,000,000. Can you make a profit via triangular arbitrage? If so, show the steps and calculate the amount of profit in Swiss francs.

11. Around the horn. Assume the following quotes: Citibank quotes U.S dollars

per pound at $1.5400/£, National Westminster quotes euro per pound at €1.6000/£,

Deutschebank quotes dollars per euro at $0.9700/€. Calculate how a market trader at

Citibank with $1,000,000 can make inter-market arbitrage profit.

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