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FINA3020 Tutorial2

Cuhk Fina 3020 lecture notes

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Ka Ki Lau
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15 views

FINA3020 Tutorial2

Cuhk Fina 3020 lecture notes

Uploaded by

Ka Ki Lau
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Pone ( 版) 18 ,

FINA3020 International Finance


Tutorial 2

Questions:

⼀1. Using the following quotes calculate the one-, three-, and six-month forward cross-
exchange rates between AUD and CHF. State the forward cross-rates in AUD/CHF.
USD/AUD USD/CHF
1-month forward 0.7117 1.0047 1 . 411 A
3-month forward 0.7125 1.0104 1 . 418 v
6-month forward 0.7139 1.0193 1 . 4278

⼀
2. Using the spot and outright forward quotes of USD/EUR below, determine the
10 , 000mdrale
corresponding forward points. (F S)×
-

v
Bid Ask
1 34335
35 [ Spot 1.3431 1.3436 .

1-month 1.3432 1.3442 1 .


343 ⼦
3-month 1.3448 1.3463
6-month 1.3488 1.3508

⼀
3. Assume you are a trader with Deutsche Bank. From the quote screen on your computer

⼀
terminal, you notice that Dresdner Bank is quoting EUR/USD 0.7627 and Credit Suisse is
offering CHF/USD 1.1806. You learn that UBS is making a direct market between CHF
and EUR, with a current EUR/CHF quote of 0.6395. Show how you can make a triangular
arbitrage profit by trading at these prices. (Ignore bid-ask spreads for this problem.)
Assume you have USD 5,000,000 with which to conduct the arbitrage. What happens if
you initially sell USD for CHF? What EUR/CHF price will eliminate triangular arbitrage?

⼀4. The current spot exchange rate is USD/GPB 1.9500 and the three-month forward rate is
USDIGBP
USD/GPB 1.9000. Based on your analysis of the exchange rate, you are pretty confident
that the spot exchange rate will be GBP/USD 1.9200 in three months. Assume that you
fsellmthieemimths
BuyGpBfrward
would like to buy or sell GBP 1,000,000.
⼀
v
a) What actions do you need to take to speculate in the forward market? What is the
expected USD profit from speculation? USDW , O6
O
b) What would be your speculative profit in USD if the spot exchange rate actually
⼀ turns out to be USD/GBP 1.8600? -
46 00
enssrule 639
,

U 3) == . 6

implhied cross rale


- = 0 .
6460
USD
Pohl
51035 v
52
EUR →( HF → ,

USD
.
=
→

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