Scribd Logo
Upload

Welcome to Scribd!

  • 24 views

    1 - Forwards Problem Set

    Uploaded by

    Miaane LB
    Problem set

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    1 - Forwards Problem Set

    Uploaded by

    Miaane LB
    24 views2 pages
    Problem set

    Original Title

    1 - Forwards Problem Set (1)

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Problem set

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    24 views2 pages

    1 - Forwards Problem Set

    Uploaded by

    Miaane LB
    Problem set

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    You are on page 1of 2

    FINOPVA Problem Set

    Forwards

    1. Suppose that the current price of light crude oil is at USD 95.00 per barrel and that the 1-year market interest
    rate is at 6.5%. If a one year light crude oil forward contract is selling at USD 100.00,

    a. What should be the fair value of the forward contract to avoid arbitrage?
    b. How will you exploit this arbitrage opportunity? Show the steps that you will undertake. Show the net
    proceeds.

    2. Suppose that the annual T-bill rate is at 5.0%. If an equities investor requires a market premium of 4% over the
    one-year T-bill rate and he invested in a preferred stock that expects to make perpetual annual dividend
    payments of PhP 50.00. What is the fair value of this stock to the investor?

    3. Consider the same market scenarios as in number 2. In this case, assume that the preferred stock will pay
    annual dividends of Php 20.00 in the first two years and then PhP 50.00 every year thereafter. Compute for the
    fair value of this stock to the investor.

    4. Suppose that the USD/PhP spot rate is currently at 47.10. The 6-Mo PhP interest rate is at 5.75% while the 6-Mo
    USD interest rate is at 3.50%. A client wants to buy a 6-mo USD/PHP forward. What is the bank’s break even
    USD/PhP 6-Mo forward rate? (Show the FX and MM cover and the swap points)

    5. Assume the following rate scenario:

    Spot EUR/USD 1.4755/65


    3-mo EUR 5.625% - 5.75%
    3-mo USD 4.625% - 4.75%

    a. An importer wants to buy a 91-Day EUR/USD forward. What is the bank’s break-even selling rate if it were to
    cover at market rates? Identify the FX/MM Cover and the swap points.

    b. What is the bank’s break-even buying rate for a 3-mo EUR/USD forward if it were to cover at market rates?
    Identify the FX/MM Cover and the swap points.
    6. Refer to the following swap rate quotations by ING Bank.

    HKD SGD MYR THB IDR


    Spot 7.7433/43 1.4257/67 2.4963/73 25.0900/1110 2293/95
    T/N 0/1 1.6/1.3 2/1.7 40/50 0.40/0.60
    1 week 3/6 9.5/7.5 2/1.5 100/150 3/3.5
    1 month 18/23 33/38 4/1 650/725 15.5/16.5
    2 month 40/47 70/65 P/5 1350/1450 31/33
    3 month 60/70 100/95 4/9 2100/2200 46/48
    6 month 130/150 195/185 30/35 4500/4650 94/96
    1 year 330/380 375/335 95/120 9200/9700 190/200

    a. 3-mo USD against HKD is a premium/discount?


    b. ING’s forward exchange rate (bid and offer) for 2months USD/SGD is?
    c. ING’s forward exchange rate (bid and offer) for 2months USD/MYR is?
    d. 1 year USD against SGD is in premium/discount?
    e. ING’s forward exchange rate for 6 months USD/THB is?

    7. Consider the interest rate scenarios in the interbank money market below:
    BID OFFER
    2-yr 6.00% 6.25%
    3-yr 6.75% 7.00%
    4-yr 7.25% 7.50%

    a. If a client will be borrowing PhP 100 Million worth of funds two years from now which will mature two-
    years hence, what should be the bank’s interest rate for this FRA.

    b. If a client will be depositing Php 100 million worth of funds two years from now which will mature two
    years hence, what should be the bank’s interest rate for this FRA?

    8. Consider the interest rate scenarios in the interbank money market below:

    BID OFFER
    30D 6.00% 6.25%
    60D 6.75% 7.00%
    90D 7.25% 7.50%

    a. If a client will be borrowing PhP 250 Million worth of funds 30 days from now which will mature 60 days
    hence, what should be the bank’s interest rate for this FRA.

    b. If a client will be depositing Php 250 million worth of funds sixty days from now which will mature 30
    days hence, what should be the bank’s interest rate for this FRA?

    You might also like