Suppose that: $$\begin{array} { | l | c | c | c | }
\hline & \text { Spot Rate } & \text { 3 Month Forward Rate } & \text { 1 Year Forward Rate } \
\hline \text { sweden (krona) } & 9.3924 & 9.4554 & 9.6239 \
\hline \text { switzerland (frarc) } & 1.5231 & 1.5206 & 1.5143 \
\hline \text { Japan (Yer) } & 123.380 & 122.81 & 120.63 \
\hline
\end{array}$$ What rate do you think a Japanese bank would quote for buying or selling Swiss Francs?
A)81.01 Yen
B)83.01 Yen
C)85.01 Yen
D)87.01 Yen

Question

Suppose that: $$\begin{array} { | l | c | c | c | } 
\hline & \text { Spot Rate } & \text { 3 Month Forward Rate } & \text { 1 Year Forward Rate } \
\hline \text { sweden (krona) } & 9.3924 & 9.4554 & 9.6239 \
\hline \text { switzerland (frarc) } & 1.5231 & 1.5206 & 1.5143 \
\hline \text { Japan (Yer) } & 123.380 & 122.81 & 120.63 \
\hline
\end{array}$$ What rate do you think a Japanese bank would quote for buying or selling Swiss Francs?
A)81.01 Yen
B)83.01 Yen
C)85.01 Yen
D)87.01 Yen

Quizplus · Accepted Answer

To find the rate a Japanese bank would quote for buying or selling Swiss Francs, we need to calculate the cross rate between the Yen and the Swiss Franc. Using the spot rates for simplicity, the calculation is as follows: $\frac{123.380 \text{ Yen}}{1.5231 \text{ Swiss Francs}} \approx 81.01 \text{ Yen per Swiss Franc}$. This calculation is based on the principle of purchasing power parity and the direct exchange rates given in the table.

Suppose That What Rate Do You Think a Japanese Bank Would Quote