Question 1

Given the following information:
 Bank A: $\quad$ SF $1.5 / \$$
Bank B: $\quad \$ 1.6 /$ pound
Bank C: $\quad$ pound 0.45/SF a)What kind of arbitrage is possible?
b)If you have SF100,000 for the arbitrage,what arbitrage profit can be made?
c)At what exchange rate at the Credit Suisse would there be no arbitrage (assume that the other two exchange rates don't change)?

Accepted Answer

The answer of Given the following information:
 Bank A: $\quad$...

Question 2

All of the following are key elements of a forward contract except:

Accepted Answer

The key elements of a forward contract are the forward rate, maturity date, and settlement date. The settlement function is not a key element but rather a process by which the contract is settled.

Question 3

If CIBC posts 1.10 CA$/US$ - 1.14 CA$/US$ bid-ask exchange rates,Scotiabank posts 1.12 CA$/US$ - 1.15 CA$/US$ bid-ask exchange rates,and RBC posts 1.13 CA$/US$-1.16 CA$/US$ bid-ask exchange rates,which of the following statements is correct:

Accepted Answer

Arbitrage involves taking advantage of price differences between markets to make a profit. In this scenario, the best rate for buying US$ with CA$ is 1.10 at CIBC, and the best rate for selling US$ for CA$ is 1.16 at RBC. However, this does not create an arbitrage opportunity because you would be buying US dollars at a lower rate and selling at a higher rate without a direct opportunity to profit from a reverse transaction due to the overlapping bid-ask spreads.

Question 4

The 3 month forward rate between British pound and the Swiss franc is £0.5/SF.The current spot rate is £0.51/SF.Assuming 360 days in a year,what is the correct statement from the below?

Accepted Answer

(0.5 - 0.51)/0.51 * 360/90 = -0.784 or 7.84% discount

Question 5

The 3 month forward rate between British pound and the Swiss franc is £0.5.A speculator predicts the spot rate in three months to be £0.51 and has £1,000,000 for speculation.The speculator should not

Accepted Answer

The speculator predicts the pound will strengthen against the franc, so they should not take a long position on Swiss francs, as this would be betting on the franc strengthening.

Question 6

If the speculator's predictions prove correct,the speculator will make a profit of

Accepted Answer

(£1,000,000/.49 * .5) - 1,000,000 = £20,048

Question 7

If CIBC posts 1.10 CA$/US$ - 1.14 CA$/US$ bid-ask exchange rates,Scotiabank posts 1.12 CA$/US$ - 1.15 CA$/US$,and Bank of America posts 0.88 US$/CA$ - 0.9 US$/CA$ exchange rates,what is the maximum amount of CA$ can you get for 1 US$?

Accepted Answer

Scotiabank 1.12CA$/US$ × 1 US$ = 1.12 CA$

Question 8

The current spot exchange rate is $1.6/euro and the 6-months forward rate is $1.63/euro.You think that the spot rate will be $1.62/euro in six months.Assume that you can buy or sell euro 100,000.
a)What would be your expected profit from speculating in the forward market?
b)What would be you profit if the actual spot rate in 6 months is $1.60/euro?

Accepted Answer

The answer of The current spot exchange rate is $1.6/euro...

Question 9

Assume the following quotes:
1)Bank A: $1.5400/pound
2)Bank B: EURO 1.6000/pound
3)Bank C: $0.9700/EURO
a)Can a trader make a profit on these quotes?
b)Assume that the trader has $1,000,000 or the equivalent in another currency available for the transaction.What profit can the trader make?

Accepted Answer

The answer of Assume the following quotes:
1)Bank A: $1.5400/pound
2)Bank B:...

Question 10

If the speculator's predictions prove wrong and the actual spot rate in 3 months is £0.52 speculator will make a loss of

Accepted Answer

(£1,000,000/.52 * .5) - 1,000,000 = -£38,461.54

Question 11

The following rates are given:
 $$\begin{array} { l l l } 
& \text { Bid } & \text { Ask } \
\text { SF/EUR } & 1.5117 & 1.5127 \
\text { EUR/USD } & 0.8910 & 0.8920
\end{array}$$ Determine the bid and ask rate and the spread on the SF against the dollar.

Accepted Answer

The answer of The following rates are given:
 \[\begin{array} {...

Question 12

The speculator

Accepted Answer

The answer of The speculator
...

Question 13

The following quotes are given for the Euro against the US dollar: 0.9075 - 85,15-10,22-11,30-15 for the spot,one month,three months and six months forward contracts.
a)Calculate the outright quotations and the spread for each maturity.
b)Is the dollar at a forward premium or discount?
c)Where are the interest rates higher?

Accepted Answer

The answer of The following quotes are given for the...

Quiz 4: The Market for Foreign Exchange