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- James Clark is a foreign exchange trader with Citibank. He notices the following quotes. Spot exchange rate Six-month forward exchange rate Six-month $ interest rate Six-month SFr interest rate USD1.2051/SFr USD1.1922/SFr 8% per year 10% per year Is there an arbitrage opportunity? If yes, determine the arbitrage profit in Swiss Francs. Assume that James Clark is authorized to work with $1,000,000. Input your answer without any currency information.Your foreign exchange trader in the United States has quoted the following rates for the Swiss Francs spot, 1-month, 3-month, and 6 month: $0.5965/72 50/61 127/143 242/267 a. If/you wished to buy 1,000,000 3-month Swiss Francs, how much would you pay in dollars? b. If you wanted to buy 1,000,000 6-month dollars, how much would you pay in Swiss Francs? .C. In New York, three month treasury bills yield 11% per annum, Using ask quotes only for simplicity, calculate the yields on Swiss three-month bills.James Clark is a foreign exchange trader with Citibank. He notices the following quotes: Spot exchange rate USD 1.2051/CHF One-year forward exchange rate USD 1.1922/CHF One-year $ interest rate 8% per year One-year CHF interest rate 10% per year Is there an arbitrage opportunity? If yes, determine the arbitrage profit in Swiss Francs. Assume that James Clark is authorized to work with $1,000,000.
- (a) Jade Smith is a foreign exchange trader for a bank in New York. He has $1 million for a short-term money market investment and he faces the following quotes: (Assuming there are 360 days a year) Spot exchange rate (SFr/$) 1.2810 3-month forward rate (SFr/$) 1.2740 US dollar annual interest rate 4.8% Swiss franc annual interest rate 3.2% He wonders whether he should invest in US dollars for 90 days or make a covered interest arbitrage (CIA) investment in the swiss franc, and what is the profit/loss if he carries out this investment. (b) Using the same values in the table above, Jade decides to seek the full 4.8% return available in the US dollars by not covering his forward dollar receipts – an uncovered interest arbitrage (UIA) transaction. What is the maximum expected spot exchange rate (SFr/$) at the end of the 90-day period at which Jade can avoid losing money?Heidi Høi Jensen, a foreign exchange trader at J.P. Morgan Chase, can invest $15 million, or the foreign currency equivalent of the bank's short term funds, in a covered interest arbitrage with Denmark. Heidi plans to use the following quotes to make a covered interest arbitrage (CIA). Assumptions Arbitrage funds available Spot exchange raté (kr/S) 3-month forward rate (kr/S) US dollar 3-month interest rate Danish kroner 3-month interest rate Value $15,000,000 5.1197 5.1611 4.4679% 8.0239% Because for this level of analysis/problems, small differences in % lead to arbitrage profit/losses, please always use 4 digits in your calculations For your answer (since this is a dollars answer), round your answer to the nearest $0.01 (use 2 decimals). DO NOT USE commas to separate thousands. For negative results, enter the minus (-) symbol in front of the first digit/#. For example, if your answer is $4,000,287.329; then enter 4000287.33; if your answer is $400 then enter 400.00 If Heidi makes…Casper Landsten-Thirty Days Later. Casper Landsten once again has $1.1 million (or its Swiss franc equivalent) to invest for three months. He now faces the following rates. Should he enter into a covered interest arbitrage (CIA) investment? Arbitrage funds available Spot exchange rate (SFr/$) 3-month forward rate (SFr/$) U.S. Dollar annual interest rate Swiss franc annual interest rate $ 1,100,000 1.3392 1.3287 4.754 % 3.628 % The CIA profit potential is 2.035%, which tells Casper Landsten he should borrow U.S. dollars and invest in the lower yielding currency, the Swiss franc, and then sell the Swiss franc principal and interest forward three months locking in a CIA profit. (Round to three decimal places and select from the drop-down menus.) The CIA profit amount is $ (Round to the nearest cent.)
- Consider a U.S.-based company that exports goods to Switzerland. The U.S. company expects to receive a payment of 50,000 Swiss Francs (CHF) on a shipment of goods in 6 months' time. The U.S. interest rate is 2% p.a., and the Swiss interest rate is 4% p.a. Assume that the current spot rate is CHF0.96/USD. Which of the following statements is correct: The risk to the U.S. company is that the value of the Swiss franc will rise and therefore it should enter into a contract to buy Swiss francs forward The risk to the U.S. company is that the value of the Swiss franc will decline and therefore it should enter into a contract to buy Swiss francs forward The risk to the U.S. company is that the value of the Swiss franc will decline and therefore it should enter into a contract to sell Swiss francs forward The risk to the U.S. company is that the value of the Swiss franc will rise and therefore it should enter into a contract to sell Swiss francs forwardYou are the treasurer for ABC corporation. You just received a bill from your Italian supplier of Genoa salami for Eur1,000,000. The Euros are due in three months. 1- What is your underlying exposure? ( Are you long or short Euros before you think about hedging? You owe Euros) 2- If the EURUSD 3 month forward exchange rate is $1.15/EUR today. Tomorrow the EURUSD 3 month forward rate rises to $1.18/EURWhen you mark your books to market, what is the gain or loss on the underlying position?The forward rate of the Swiss franc is $0.50. The spot rate of the Swiss franc is $0.48. The following interest rates exist: U.S. Switzerland 360-day borrowing rate 7% 5% 360-day deposit rate 6% 4% You need to purchase SF200,000 in 360 days. If you use a money market hedge, the amount of dollars you need in 360 days is ______. A. $101,904 B. $101,923 C. $96,914 D. $98,770
- Heidi Høi Jensen, a foreign exchange trader at J.P. Morgan Chase, can invest $5 million, or the foreign currency equivalent of the bank's short term funds, in a covered interest arbitrage with Denmark. Assumptions Arbitrage funds available Spot exchange rate (kr/$) 3-month forward rate (kr/S) US dollar 3-month interest rate Danish kroner 3-month interest rate Value $5,000,000 6.1720 6.1980 4.000% a) 5.000% a) kr Equivalent kr 30,860,000 Heidi Høi Jensen generates a covered interest arbitrage profit because, although U.S. dollar interest rates are lower, the U.S. dollar is selling forward at a premium against the Danish krone. What is the amount of that profit? kr21,102 kr34,750 kr24,250 kr54,150An investor has $10m to invest and has the following options: 1) depositing it in a US bank account paying 3% annually, or 2) depositing it in a German bank, where the annual rate of interest is only 2%. Assume that today the current spot exchange rate for the Euro is given as $1.2750, while the 1-year Dollar-Euro forward rate is posted as 1.2995. a. Based on your knowledge of the relationship between interest rate differentials and the current dollar-euro forward premium or discount, in which country should the investor deposit her money? why? b. If you had the power to adjust the German interest rate, with all else constant, what rate would you establish, such that the investor is totally indifferent between depositing in either countries? Show your work and the logic behind it.According to this morning's The National Post, you can exchange $1 for $0.77 U.S. in three months. Thus, the ________ is $1.30 Canadian. A. Backward rate. B. Forward rate. C. Futures rate. D. Triangle rate. E. Spot rate.
