5. You'rethe treasurer of Japanese firm needing to buy USD. You cal...

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  5. 5. You'rethe treasurer of Japanese firm needing to buy USD. You cal...


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5. You'rethe treasurer of Japanese firm needing to buy USD. You call the foreign exchange trading desk at Bank of Tokyo-Mitsubishi and the bank gives you quote of 112.65/ 112 75 for USDJPY. At what rate would you be able buy USD from the bank? 9. Assume the following: Spot USDBRL 1365 6MO USD Money Market Rates 1.5% 6MO BRL Money Market Rates 10. 75% What is the 6MO USDBRL forward rate? (Recall that Money Market Rates are annualized rates) 10. Assume the following: Spot GBPUSD .3280 9MO GBP Money Market Rates 0.65% 9MO USD Money Market Rates 1.75% What is the 9MO GBP/USD forward rate? (Recall that LIBOR is an annualized rate) 11. Considering questions and 10 above, what underlying theory did you use to make your calculations? Briefly explain why it important for managers to know and understand this theory 12. You are currency trader sitting at your desk monitoring the currency markets. It's lunch time on Friday before long holiday weekend. so many dealers have stepped away from the trading desk and everything seems pretty quiet. You suddenly notice that you can buy EURUSD from HSBC in the Londor market at 1750, you can buy USDJPY from JPMorgan Chase in New York at 112.75, and you can sell EURJPY to M&T Bank in Buffalo at 132 68. Giventhis information is there an arbitrage opportunity? Support your answer mathematically 13. Blowfast Corporation, U.S. exporter. sold wind turbines to Mexican customer at a price of 5,000,000 U.S dollars. In order to close the sale. however, Blowfast needed to agree to make its invoice payable in Mexican pesos, thus agreeing to take on the exchange rate risk for the transaction. The USDMXN exchange rate on the day of the sale was 12.0000. making the cost the customer (per the invoice) 60,000,000 pesos. The terms of payment were: net. 6 months. If the value of the peso fell against the U.S dollar such that one dollar would buy 17.0000 pesos by the date the invoice needed to be paid. what ollar amount would Blowfast receive assuming that it exchanged the recently received pesos for U.S. dollars inz foreign exchange transaction on the payment date? 16. You have been hired as consultant to the central bank for small country that. for many years, has suffered from repeated currency crises and rampant in iflation. The country depends heavily on both the German and French financial and product markets What type of exchange rate policy would have the greatest impact and reduce currency volatility between the client country and both Germany and France? 24. Under fixed exchange rate system, the government bears the responsibility to ensure that the Balance of Payments is near zero. If the sum of the current and capital accounts do not approximate zero. the government is expected to intervene in the foreign exchange market by buying or selling official foreign exchange reserves. the sum of the current and capital accounts is GREATER THAN ZERO what action does the government need to take in order to preserve the fixed exchange rate The Following Question is worth total of points: Use the data table to answer the following questions: EURUSD Spot Quotes Bank Bid Ask Citibank 1.1730 1.1735 HSBC 1.1732 1.1737 JP Morgan Chase .1725 1.1730 EURUSD 6-month Forward Quotes Bank Bid Ask Barclays Bank .1697 1.1704 Royal Bank 1.1700 1.1707 6-month Interest Rates (per annum simple interest) Bank Currency Interest Rate Bank America U.S Dollar 0.50% Deutsche Bank Euro 1.50% a Given the above three spot quotations for EURUSD is there an opportunity for arbitrage in the spot market? If so, from which banks would you choose for which transactions? Assume that you had EUR 2,000,000 of capital available for an arbitrage transaction. What would the USD profit be? b. Assume that you are U.S corporation and need to buy EUR 4,000,000 tocover an A/P due in months. Of the two banks that have quoted the forward prices which bank would you use for your transaction? How much money did you save your company by choosing this price as opposed to the other price? c. Is there covered interest arbitrage opportunity? Start with the assumption that you will borrow 1,000,000 U.S. dollars and can convert them into Euro's at the spot rate of EUR/USD=1.1730. Demonstrate your answer mathematically. The Following Question is worth a total of points: Considering Purchasing Power Parity and the Law of One Price: a. Assume that the current price of Big Mac in the United States today is $5.75 Assume also that the current price of Big Mac in Malaysia 14.00 ringgits and that the current USDMYR exchange rate is 4.2250. What the implied ppp of the USD? b. Using the assumptions above, what is the under (-), over (+) valuation against the dollar in percentage terms? c. What are the implications associated with your answer to part t b.? d. Describe the short-falls. if any, of PPP as predictor of currency rates?

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Answer 5:

The rate at which I can buy is the ask rate since the bank sells at the ask rate. Thus my rate for buying USD would be 112.75 USDJPY....

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