Professional Documents
Culture Documents
1 Visiting Guatemala
Isaac Dez Peris lives in Rio de Janeiro. While attending school in Spain he meets
Juan Carlos Cordero from Guatemala. Over the summer holiday Isaac decides to
visit Juan Carlos in Guatemala City for a couple of weeks. Isaac's parents give
him some spending money, R$4,500. Isaac wants to exchange it to Guatemalan
quetzals (GTQ). He collects the following rates:
Spot rate on the GTQ/ cross rate
Spot rate on the /reais cross rate
GTQ 10.5799/
0.4462/R$
Values
4,500.00
10.5799
0.4462
4.72
21,243
/$
Bid Rate
85.41
85.02
84.86
84.37
83.17
82.87
81.79
/$
Ask Rate
85.46
85.05
84.90
84.42
83.20
82.91
81.82
Period
spot
1 month
2 months
3 months
6 months
12 months
24 months
Days Forward
30
60
90
180
360
720
/$
Bid Rate
85.41
85.02
84.86
84.37
83.17
82.87
81.79
/$
Ask Rate
85.46
85.05
84.90
84.42
83.20
82.91
81.82
a.
Calculated
Mid-Rate
85.43500
85.03500
84.88000
84.39500
83.18500
82.89000
81.80500
b.
Forward
Premium
5.6447%
3.9232%
4.9292%
5.4096%
3.0703%
2.2187%
The forward rates progressively require fewer and fewer Japanese yen per dollar than the current spot rate. Therefore the yen is
selling forward at a premium and the dollar is selling forward at a discount.
c. Which maturities have the smallest and largest forward premiums?
The 24 month forward rate has the smallest premium, while the 1 month forward possesses the largest premium.
$1.3214/
Rbl 30.96/$
Values
15,000.00
1.3214
30.96
40.91
Rubles/ = Rubles/$ x $/
b) How many rubles will you obtain for your euros?
Converting your euros into Rubles
613,658
Rbl 30.96/$
84.02/$
Values
450,000.00
30.96
84.02
0.3685
Rubles/ = Rubles/$ /$
b) How many rubles will you obtain for your euros?
Converting your Rubles into yen
1,221,177
Period
spot
1 month
2 months
3 months
6 months
12 months
Period
spot
1 month
2 months
3 months
6 months
12 months
Period
spot
1 month
2 months
3 months
6 months
12 months
Days
Forward
30
60
90
180
360
Days
Forward
30
60
90
180
360
Days
Forward
30
60
90
180
360
C$/euro
1.3360
1.3368
1.3376
1.3382
1.3406
1.3462
C$/euro
1.3360
1.3368
1.3376
1.3382
1.3406
1.3462
US$/euro
1.3221
1.3230
1.3228
1.3224
1.3215
1.3194
US$/euro
1.3221
1.3230
1.3228
1.3224
1.3215
1.3194
Forward Premium
on the C$/euro
0.722%
0.705%
0.659%
0.693%
0.765%
Forward Premium
on the US$/euro
0.817%
0.318%
0.091%
-0.091%
-0.204%
C$ Proceeds of
12,000.00
16,032.00
16,041.65
16,050.84
16,058.41
16,087.54
16,154.69
Difference
Over Spot
$9.65
$18.84
$26.41
$55.54
$122.69
US$ Proceeds of
12,000.00
$15,865.20
$15,876.00
$15,873.60
$15,868.80
$15,858.00
$15,832.80
Difference
Over Spot
$10.80
$8.40
$3.60
($7.20)
($32.40)
The Canadian exporter will be receiving six payments of 12,000 euros, ranging from now to 12 months in the future. Since the
company keeps cash balances in both Canadian dollars and US dollars, it can choose which currency to change the euros to at the end
of the various periods. And since the company wishes to lock in the forward rate for each and every payment, it would appear that the
company should lock in forward rates in C$ for all payments. Since the euro is selling forward at a greater premium against the
Canadian dollar than the U.S. dollar, the resulting dollar proceeds are higher.
a. Which of the following currencies had the largest depreciations or devaluations during the July to November period?
b. Which seemingly survived the first five months of the crisis with the least impact on their currencies?
Country
China
Hong Kong
Indonesia
Korea
Malaysia
Philippines
Singapore
Taiwan
Thailand
Currency
yuan
dollar
rupiah
won
ringgit
peso
dollar
dollar
baht
July 1997
(per US$)
8.40
7.75
2,400
900
2.50
27
1.43
27.80
25.0
November 1997
(per US$
8.40
7.73
3,600
1,100
3.50
34
1.60
32.70
40.0
Part a.
Percentage
Change vs dollar
0.0%
0.3%
-33.3%
-18.2%
-28.6%
-20.6%
-10.6%
-15.0%
-37.5%
Part b.
The Chinese yuan's value against the US dollar, as a result of the Chinese government maintaining its peg to the dollar,
did not change at all during the crisis. The Thai baht, however, fell 37.5% in only five months, with the Indonesian rupiah
a close second with a loss of 33.3%.
USD
7.7736
1.015
1.0097
0.9819
0.6328
83.735
0.7549
EUR
10.2976
1.3446
1.3376
1.3008
0.8382
110.9238
1.3247
JPY
0.0928
0.0121
0.0121
0.0117
0.0076
0.009
0.0119
Quote
83.735
0.0119
1.3247
0.7549
110.9238
0.009
1.0097
0.9904
1.015
0.9852
0.6328
1.5804
1.0184
0.9819
GBP
12.2853
1.6042
1.5958
1.5519
132.3348
1.193
1.5804
Calculated
0.0119
0.7549
0.0090
0.9904
0.9852
1.5803
0.9819
CHF
7.9165
1.0337
1.0283
0.6444
85.2751
0.7688
1.0184
CAD
7.6987
1.0053
0.9725
0.6267
82.9281
0.7476
0.9904
AUD
7.6584
0.9948
0.9674
0.6234
82.4949
0.7437
0.9852
HKD
0.1306
0.1299
0.1263
0.0814
10.7718
0.0971
0.1286
Period
spot
1 month
2 months
3 months
6 months
12 months
24 months
US$/
Bid Rate
1.3231
1.3230
1.3228
1.3224
1.3215
1.3194
1.3147
US$/
Ask Rate
1.3232
1.3231
1.3229
1.3227
1.3218
1.3198
1.3176
Period
spot
1 month
2 months
3 months
6 months
12 months
24 months
Days Forward
30
60
90
180
360
720
US$/
Bid Rate
1.3231
1.3230
1.3228
1.3224
1.3215
1.3194
1.3147
US$/
Ask Rate
1.3232
1.3231
1.3229
1.3227
1.3218
1.3198
1.3176
a)
Calculated
Mid-Rate
1.32315
1.32305
1.32285
1.32255
1.32165
1.31960
1.31615
b)
Forward
Premium
-0.0907%
-0.1360%
-0.1814%
-0.2267%
-0.2683%
-0.2645%
The forward rates progressively require less and less U.S. dollars per euro than the current spot rate. Therefore the dollar is
selling forward at a premium and the euro is selling forward at a discount.
c) Which maturities have the smallest and largest forward premiums?
The 24 month forward rate has the smallest premium, while the 1 month forward possesses the largest premium.
SF 1.2575/$
SF 1.2585/S
10 to 15
14 to 22
20 to 30
a. Calculate outright quotes for bid and ask, and the number of points spread between each.
b. What do you notice about the spread as quotes evolve from spot toward six months?
c. What is the 6-month Swiss bill rate?
Assumptions
Spot exchange rate:
Bid rate (SF/$)
Ask rate (SF/$)
One-month forward
3-months forward
6-months forward
Values
1.2575
1.2585
10 to 15
14 to 22
20 to 30
Bid
1.2585
1.2589
1.2595
Ask
1.2600
1.2607
1.2615
Spread
0.0015
0.0018
0.0020
92.00/$
SF1.02/$
90.00/SF
Assume you have an initial SF12,000,000. Can you make a profit via triangular arbitrage?
If so, show the steps and calculate the amount of profit in Swiss francs.
Assumptions
Beginning funds in Swiss francs (SF)
Mt. Fuji Bank (yen/$)
Mt. Rushmore Bank (SF/$)
Mt Blanc Bank (yen/SF)
Try Number 1: Start with SF to $
Step 1: SF to $
Step 2: $ to yen
Step 3: yen to SF
Profit?
Values
12,000,000.00
92.00
1.0200
90.00
11,764,705.88
1,082,352,941.18
12,026,143.79
26,143.79
A profit.
1,080,000,000.00
11,739,130.43
11,973,913.04
(26,086.96)
A loss.
Period
spot
1 month
2 months
3 months
6 months
12 months
24 months
US$/A$
Bid Rate
0.98510
0.98131
0.97745
0.97397
0.96241
0.93960
0.89770
US$/A$
Ask Rate
0.98540
0.98165
0.97786
0.97441
0.96295
0.94045
0.89900
Period
spot
1 month
2 months
3 months
6 months
12 months
24 months
Days Forward
30
60
90
180
360
720
US$/A$
Bid Rate
0.98510
0.98131
0.97745
0.97397
0.96241
0.93960
0.89770
US$/A$
Ask Rate
0.98540
0.98165
0.97786
0.97441
0.96295
0.94045
0.89900
a.
Calculated
Mid-Rate
0.98525
0.98148
0.97766
0.97419
0.96268
0.94003
0.89835
b.
Forward
Premium
-4.5917%
-4.6252%
-4.4902%
-4.5816%
-4.5902%
-4.4100%
The forward rates progressively require fewer and fewer US dollars per Australian dollar than the current spot rate. Therefore
the US dollar is selling forward at a premium and the Australian dollar is selling forward at a discount.
c. Which maturities have the smallest and largest forward premiums?
The 24 month forward rate has the largest premium, while the 2 month forward possesses the smallest premium.
Barclays London
$0.7545-75/
Using $1 million or its euro equivalent, show how the corporate treasury could make
geographic arbitrage profit with the two different exchange rate quotes.
Assumptions
Beginning funds
Values
1,000,000.00
0.7551
0.7561
0.7545
0.7575
$
$
$
$
$
$
1,000,000.00
1,320,132.01
996,831.68
(3,168.32)
1,000,000.00
1,322,576.38
997,883.88
(2,116.12)
Values
778
1,025
Devaluation
then
Depreciation
-24.10%
Values
1,400
1,950
-40.0%
-28.21%
3,250
Assumptions
Days forward
European euro ( per $)
Quoted
Spot rate
1.3300
90-day
Forward rate
90
1.3400
Percent premium
or discount on euro
-2.9851%
The euro would be selling forward at a premium against the dollar, or equivalently, the dollar selling
forward against the euro at a discount.
In a way, the terminology is a bit tricky. One might say that the "forward premium is a premium."
Check calculation
One way to check percentage change calculations is to invert each of the currency
quotes (1/(/$)), and recalculate the quote using the direct quotation formula.
European euro ($ per )
Percent discount = (F-S)/(S) x (360/90)
$0.7519
$0.7463
-2.9851%
Assumptions
Days forward
Exchange rate, US$/
Quoted
Spot rate
$
1.5800
180-day
Forward rate
180
1.5550
Percent premium
or discount
-3.1646%
The forward rate requires fewer US dollars in exchange for pounds than the current spot rate. The dollar is therefore
selling forward at a premium against the pound (and the pound is simultaneously selling forward at a discount versus the
US dollar).
Check calculation
Inverting the quotes (/US$)
0.6329
0.6431
-3.1646%
Exchange rate
12.45
0.7550
16.4901
0.0606
Exchange rate
500.29
1.0200
490.4804
0.0020
$1.5900/
1.2000/
$0.7550/
$
$
$
$
Exchange rate
1.5900
1.2000
0.7550
1,000,000.00
1,000,000.00
1,324,503.31
1,103,752.76
1,754,966.89
754,966.89
1,000,000.00
628,930.82
754,716.98
569,811.32
(430,188.68)
$1.9324/LYD
SAR 1.9405/LYD
$0.2667/SAR
$
$
$
$
Exchange rate
1.9324
1.9405
0.2667
1,000,000.00
1,000,000.00
SAR 3,749,953.13
LYD 1,932,467.47
3,734,300.14
2,734,300.14
1,000,000.00
LYD 517,491.20
SAR 1,004,191.68
267,787.79
(732,212.21)