67) Restate the following one-, three-, and six-month outright forward American term bid-ask
quotes in forward points:
S($/SFr)
=
0.8500
−
0.8505
F1($/SFr)
=
0.8505
−
0.8505
F3($/SFr)
=
0.8510
−
0.8520
F6($/SFr)
=
0.8515
−
0.8530
A)
Forward Point Quotations
One-Month
05-05
Three-Month
10-15
Six-Month
15-25
B)
Forward Point Quotations
One-Month
05-05
Three-Month
05-10
Six-Month
05-10
C)
Forward Point Quotations
One-Month
00-05
Three-Month
05-10
Six-Month
05-10
D) none of the options
68) If one has agreed to buy a foreign exchange forward,
A) you have a short position in the forward contract.
B) you have a long position in the forward contract.
C) until the exchange rate moves, you haven’t made money, so you’re neither short nor long.
D) you have a long position in the spot market.
69) The current spot exchange rate is $1.55/€ and the three–month forward rate is $1.50/€. You
enter into a short position on €1,000. At maturity, the spot exchange rate is $1.60/€. How much
have you made or lost?
A) Lost $100
B) Made €100
C) Lost $50
D) Made $150
70) The current spot exchange rate is $1.55/€ and the three–month forward rate is $1.50/€. Based
on your analysis of the exchange rate, you are confident that the spot exchange rate will be $1.52/€
in three months. Assume that you would like to buy or sell €1,000,000. What actions do you need
to take to speculate in the forward market?
A) Take a long position in a forward contract on €1,000,000 at $1.50/€.
B) Take a short position in a forward contract on €1,000,000 at $1.50/€.
C) Buy euro today at the spot rate, sell them forward.
D) Sell euro today at the spot rate, buy them forward.
71) The current spot exchange rate is $1.45/€ and the three–month forward rate is $1.55/€. Based
upon your economic forecast, you are pretty confident that the spot exchange rate will be $1.50/€
in three months. Assume that you would like to buy or sell €100,000. What actions would you take
to speculate in the forward market? How much will you make if your prediction is correct?
A) Take a short position in a forward. If you’re right you will make $15,000.
B) Take a long position in a forward contract on euro. If you’re right you will make $5,000.
C) Take a short position in a forward contract on euro. If you’re right you will make $5,000.
D) Take a long position in a forward contract on euro. If you’re right you will make $15,000.
72) Consider a trader who takes a long position in a six-month forward contract on the euro. The
forward rate is $1.75 = €1.00; the contract size is €62,500. At the maturity of the contract the spot
exchange rate is $1.65 = €1.00.
A) The trader has lost $625.
B) The trader has lost $6,250.
C) The trader has made $6,250.
D) The trader has lost $66,287.88.
73) The current spot exchange rate is $1.55/€ and the three–month forward rate is $1.50/€. Based
on your analysis of the exchange rate, you are confident that the spot exchange rate will be $1.62/€
in three months. Assume that you would like to buy or sell €1,000,000. What actions do you need
to take to speculate in the forward market? What is the expected dollar profit from speculation?
A) Sell €1,000,000 forward for $1.50/€.
B) Buy €1,000,000 forward for $1.50/€.
C) Wait three months, if your forecast is correct buy €1,000,000 at $1.52/€.
D) Buy €1,000,000 today at $1.55/€; wait three months, if your forecast is correct sell €1,000,000
at $1.62/€.
74) The current spot exchange rate is $1.50/€ and the three–month forward rate is $1.55/€. Based
on your analysis of the exchange rate, you are confident that the spot exchange rate will be $1.62/€
in three months. Assume that you would like to buy or sell €1,000,000. What actions do you need
to take to speculate in the forward market? What is the expected dollar profit from speculation?
A) Sell €1,000,000 forward for $1.50/€.
B) Buy €1,000,000 forward for $1.55/€.
C) Wait three months, if your forecast is correct buy €1,000,000 at $1.62/€.
D) Buy €1,000,000 today at $1.50/€; wait three months, if your forecast is correct sell €1,000,000
at $1.62/€.
75) Which of the following are correct?
A) (j / k) =
B) (j / k) =
C) (k / j) =
D) all of the options
76) Which of the following are correct?
A) (j / k) =
B) (j / k) =
C) (k / j) =
D) all of the options
77) Which of the following are correct?
A) (j / k) =
B) (j / k) =
C) (j / k) =
D) all of the options
78) Which of the following are correct?
A) (k / j) =
B) (k / j) =
C) (k / j) =
D) all of the options
79) When a currency trades at a premium in the forward market
A) the exchange rate is more than one dollar (e.g., €1.00 = $1.28).
B) the exchange rate is less than one dollar.
C) the forward rate is less than the spot rate.
D) the forward rate is more than the spot rate.
80) When a currency trades at a discount in the forward market
A) the forward rate is less than the spot rate.
B) the forward rate is more than the spot rate.
C) the forward exchange rate is less than one dollar (e.g. €1.00 = $0.928).
D) the exchange rate is less than it was yesterday.
81) The SF/$ spot exchange rate is SF1.25/$ and the 180 day forward exchange rate is SF1.30/$.
The forward premium (discount) is
A) the dollar trading at an 8% premium to the Swiss franc for delivery in 180 days.
B) the dollar trading at a 4% premium to the Swiss franc for delivery in 180 days.
C) the dollar trading at an 8% discount to the Swiss franc for delivery in 180 days.
D) the dollar trading at a 4% discount to the Swiss franc for delivery in 180 days.
82) The €/$ spot exchange rate is $1.50/€ and the 120 day forward exchange rate is 1.45/€. The
forward premium (discount) is
A) the dollar trading at an 8% premium to the euro for delivery in 120 days.
B) the dollar trading at a 5% premium to the Swiss franc for delivery in 120 days.
C) the dollar trading at a 10% discount to the euro for delivery in 120 days.
D) the dollar trading at a 5% discount to the euro for delivery in 120 days.
83) The €/$ spot exchange rate is $1.50/€ and the 90-day forward premium is 10 percent. Find the
90-day forward price.
A) $1.65/€
B) $1.50375/€
C) $1.9125/€
D) none of the options
84) The SF/$ spot exchange rate is SF1.25/$ and the 180 day forward premium is 8 percent. What
is the outright 180 day forward exchange rate?
A) SF1.30/$
B) SF1.35/$
C) SF6.25/$
D) none of the options
85) The SF/$ 180-day forward exchange rate is SF1.30/$ and the 180 day forward premium is 8
percent. What is the outright spot exchange rate?
A) SF1.30/$
B) SF1.35/$
C) SF1.25/$
D) none of the options
86) Consider the following spot and forward rate quotations for the Swiss franc.
S($/SFr) = 0.85
F1($/SFr) = 0.86
F2($/SFr) = 0.87
F3($/SFr) =0.88
Which of the following is true?
A) The Swiss franc is definitely going to be worth more dollars in six months.
B) The Swiss franc is probably going to be worth less in dollars in six months.
C) The Swiss franc is trading at a forward discount.
D) The Swiss franc is trading at a forward premium.
87) Consider the following spot and forward rate quotations for the Swiss franc.
S($/SFr) = 0.85
F1($/SFr) = 0.86
F2($/SFr) = 0.87
F3($/SFr) =0.88
Calculate the 3-month forward premium in American terms. Assume 30-360 pricing convention.
A) 0.353.
B) 0.4235.
C) 0.1364.
D) 0.1412.
88) Swap transactions
A) involve the simultaneous sale (or purchase) of spot foreign exchange against a forward
purchase (or sale) of approximately an equal amount of the foreign currency.
B) account for about half of Interbank FX trading.
C) involve trades of one foreign currency for another without going through the U.S. dollar.
D) all of the options
89) As a rule, when the interest rate of the foreign currency is greater than the interest rate of the
quoting currency,
A) the outright forward rate is less than the spot exchange rate.
B) the outright forward rate is more than the spot exchange rate.
C) the currency will trade at a premium in the forward contract.
D) none of the options
90) Bank dealers in conversations among themselves use a shorthand notation to quote bid and ask
forward prices in terms of forward points. This is convenient because
A) forward points may change faster than spot and forward quotes.
B) forward points may remain constant for long periods of time, even if the spot rates change
frequently.
C) in swap transactions where the trader is attempting to minimize currency exposure, the actual
spot and outright forward rates are often of no consequence.
D) forward points may remain constant for long periods of time, even if the spot rates change
frequently, and in swap transactions where the trader is attempting to minimize currency exposure,
the actual spot and outright forward rates are often of no consequence.
91) Bank dealers in conversations among themselves use a shorthand notation to quote bid and ask
forward prices in terms of forward points. Complete the following table:
Spot
Forward Point Quotations
1.9072-1.9077
One-month
32-30
Three-month
57-54
1.9015-1.9023
Six-month
145-138
1.8927-1.8939
A) 1.9040–1.9047
B) 1.9042–1.9049
C) 1.9032–1.9030
D) none of the options
92) An exchange-traded fund (ETF) is
A) the same thing as a mutual fund.
B) a portfolio of financial assets in which shares representing fractional ownership of the fund are
sold and redeemed by the fund sponsor.
C) a portfolio of financial assets in which shares representing fractional ownership of the fund
trade on an organized exchange.
D) none of the options
93) The largest and most active financial market in the world is
A) the Fleet Street Exchange in London.
B) the NYSE in New York.
C) the FX market.
D) none of the options
94) Nondollar currency transactions
A) are priced by looking at the price that must exist to eliminate arbitrage.
B) allow for triangular arbitrage opportunities to keep the currency dealers employed.
C) are only for poor people who don’t have dollars.
D) none of the options
31
95) Consider the balance sheets of Bank A and Bank B. Bank A is in Milan, Bank B is in New
York. The current exchange rate is €1.00 = $1.25. Show the correct balances in each account if a
currency trader employed at Bank A buys €100,000 from a currency trader at Bank B for $125,000
using its correspondent relationship with Bank B.
Bank A (Milan) 000s
Assets
Liabilities and Equity
OLD
NEW
OLD
NEW
€ deposit at B
€
500
B’s
Eurodollar
deposit
$
900
$ deposit at B
$
800
B’s €
deposit
€
220
Cash in the
Vault
€
200
€
200
Other
Liabilities
€
300
€
300
Other Assets
€
400
€
400
Owners
Equity
€
500
€
500
Total Assets
@ €1.00 =
$1.25
€
1,740
Total
Liabilities
& Equity @
€1.00 =
$1.25
€
1,740
Bank B (NYC) 000s
Assets
Liabilities and Equity
OLD
NEW
OLD
NEW
Eurodollar
Deposit at A
€
900
A’s euro
deposit
$
500
€ deposit at A
$
220
A’s $
deposit
€
800
Cash in the
Vault
€
200
€
200
Other
Liabilities
€
200
€
200
Other Assets
€
600
€
600
Owners
Equity
€
350
€
350
Total Assets
@ €1.00 =
$1.25
€
1,975
Total
Liabilities
& Equity @
€1.00 =
$1.25
€
1,975
32
Copyright © 2018 McGraw-Hill
Answer:
Bank A (Milan) 000s
Assets
Liabilities and Equity
OLD
NEW
OLD
NEW
€ deposit at B
€
500
€
600
B’s
Eurodollar
deposit
$
900
$
1,025
$ deposit at B
$
800
$
675
B’s €
deposit
€
220
€
120
Cash in the
Vault
€
200
€
200
Other
Liabilities
€
300
€
300
Other Assets
€
400
€
400
Owners
Equity
€
500
€
500
Total Assets
@ €1.00 =
$1.25
€
1,740
€
1,740
Total
Liabilities
& Equity @
€1.00 =
$1.25
€
1,740
€
1,740
Bank B (NYC) 000s
Assets
Liabilities and Equity
OLD
NEW
OLD
NEW
Eurodollar
Deposit at A
€
900
$
1,025
A’s euro
deposit
$
500
€
600
€ deposit at A
$
220
€
120
A’s $
deposit
€
800
$
675
Cash in the
Vault
€
200
€
200
Other
Liabilities
€
200
€
200
Other Assets
€
600
€
600
Owners
Equity
€
350
€
350
Total Assets
@ €1.00 =
$1.25
€
1,975
$
1,975
Total
Liabilities
& Equity @
€1.00 =
$1.25
€
1,975
$
1,975
Topic: Correspondent Banking Relationships
33
96) Consider the balance sheets of Bank A and Bank B. Bank A is in London, Bank B is in New
York. The current exchange rate is £1.00 = $2.00. Show the correct balances in each account if a
currency trader employed at Bank A buys £45,000 from a currency trader at Bank B for $90,000
using its correspondent relationship with Bank B.
Bank A (London) 000s
Assets
Liabilities and Equity
OLD
NEW
OLD
NEW
£ deposit at B
£
500
B’s Eurodollar
deposit
$
850
$ deposit at B
$
1,000
B’s £ deposit
£
100
Cash in the
Vault
£
200
Other Liabilities
£
300
Other Assets
£
400
Owners Equity
£
775
Total Assets
£
1,600
Total Liabilities
& Equity
£
1,600
Bank B (NYC) 000s
Assets
Liabilities and Equity
OLD
NEW
OLD
NEW
Eurodollar
Deposit at A
$
850
A’s £ deposit
£
500
£ deposit at A
£
100
A’s $ deposit
$
1,000
Cash in the Vault
$
200
Other
Liabilities
$
200
Other Assets
$
1,000
Owners Equity
$
50
Total Assets
$
2,250
Total
Liabilities &
Equity
$
2,250
34
Copyright © 2018 McGraw-Hill
Answer:
Bank A (London) 000s
Assets
Liabilities and Equity
OLD
NEW
OLD
NEW
£ deposit at
B
£
500
£
545
B’s
Eurodollar
deposit
$
850
$
940
$ deposit at
B
$
1,000
$
910
B’s £ deposit
£
100
£
55
Cash in the
Vault
£
200
£
200
Other
Liabilities
£
300
£
300
Other
Assets
£
400
£
400
Owners
Equity
£
775
£
775
Total Assets
£
1,600
£
1,600
Total
Liabilities &
Equity
£
1,600
£
1,600
Bank B (NYC) 000s
Assets
Liabilities and Equity
OLD
NEW
OLD
NEW
Eurodollar
Deposit at A
$
850
$
940
A’s £
deposit
£
500
£
545
£ deposit at A
£
100
£
55
A’s $
deposit
$
1,000
$
910
Cash in the
Vault
$
200
$
200
Other
Liabilities
$
200
$
200
Other Assets
$
1,000
$
1,000
Owners
Equity
$
50
$
50
Total Assets
$
2,250
$
2,250
Total
Liabilities
& Equity
$
2,250
$
2,250
Topic: Correspondent Banking Relationships
35
97) Consider the balance sheets of Bank A and Bank B. Bank A is in London, Bank B is in New
York. The current exchange rate is & pound;1.00 = $2.00. Show the correct balances in each
account if a currency trader employed at Bank A buys £50,000 from a currency trader at Bank B
for $100,000 using its correspondent relationship with Bank B.
Bank A (London) 000s
Assets
Liabilities and Equity
OLD
NEW
OLD
NEW
£ deposit at B
£
500
B’s Eurodollar
deposit
$
850
$ deposit at B
$
1,000
B’s £ deposit
£
100
Cash in the
Vault
£
200
Other Liabilities
£
300
Other Assets
£
400
Owners Equity
£
775
Total Assets
£
1,600
Total Liabilities
& Equity
£
1,600
Bank B (NYC) 000s
Assets
Liabilities and Equity
OLD
NEW
OLD
NEW
Eurodollar
Deposit at A
$
850
A’s £ deposit
£
500
£ deposit at A
£
100
A’s $ deposit
$
1,000
Cash in the Vault
$
200
Other
Liabilities
$
200
Other Assets
$
1,000
Owners Equity
$
50
Total Assets
$
2,250
Total
Liabilities &
Equity
$
2,250
36
Copyright © 2018 McGraw-Hill
Answer:
Bank A (London) 000s
Assets
Liabilities and Equity
OLD
NEW
OLD
NEW
£ deposit at
B
£
500
£
550
B’s
Eurodollar
deposit
$
850
$
950
$ deposit at
B
$
1,000
$
900
B’s £ deposit
£
100
£
50
Cash in the
Vault
£
200
£
200
Other
Liabilities
£
300
£
300
Other
Assets
£
400
£
400
Owners
Equity
£
775
£
775
Total Assets
£
1,600
£
1,600
Total
Liabilities &
Equity
£
1,600
£
1,600
Bank B (NYC) 000s
Assets
Liabilities and Equity
OLD
NEW
OLD
NEW
Eurodollar
Deposit at A
$
850
$
950
A’s £
deposit
£
500
£
550
£ deposit at A
£
100
£
50
A’s $
deposit
$
1,000
$
900
Cash in the
Vault
$
200
$
200
Other
Liabilities
$
200
$
200
Other Assets
$
1,000
$
1,000
Owners
Equity
$
50
$
50
Total Assets
$
2,250
$
2,250
Total
Liabilities
& Equity
$
2,250
$
2,250
Topic: Correspondent Banking Relationships
98)
Country
USD equiv.
Currency per USD
Tuesday
Monday
Tuesday
Monday
U.K. (Pound)
1.7368
1.7424
0.5758
0.5739
1 Month Forward
1.7369
1.7425
0.5757
0.5739
3 Months Forward
1.738
1.7434
0.5754
0.5736
6 Months Forward
1.7409
1.7461
0.5744
0.5727
Canada (Dollar)
0.8667
0.8653
1.1538
1.1557
1 Month Forward
0.8674
0.866
1.1529
1.1547
3 Months Forward
0.8688
0.8674
1.151
1.1529
6 Months Forward
0.8708
0.8693
1.1484
1.1504
Japan (Yen)
0.008518
0.008495
117.3985
117.7163
1 Month Forward
0.008548
0.008525
116.0631
117.3021
3 Months Forward
0.008616
0.008593
116.0631
116.3738
6 Months Forward
0.008724
0.0087
114.6263
114.9425
Switzerland (Franc)
0.7648
0.7652
1.3075
1.3068
1 Month Forward
0.767
0.7674
1.3038
1.3031
3 Months Forward
0.7718
0.7722
1.2957
1.295
6 Months Forward
0.7791
0.7794
1.2835
1.283
Euro
1.2000
1.1906
0.8333
0.8399
Using the table, what is the Canadian dollar–euro spot cross-exchange rate?
99)
Country
USD equiv.
Currency per USD
Tuesday
Monday
Tuesday
Monday
U.K. (Pound)
1.7368
1.7424
0.5758
0.5739
1 Month Forward
1.7369
1.7425
0.5757
0.5739
3 Months Forward
1.738
1.7434
0.5754
0.5736
6 Months Forward
1.7409
1.7461
0.5744
0.5727
Canada (Dollar)
0.8667
0.8653
1.1538
1.1557
1 Month Forward
0.8674
0.866
1.1529
1.1547
3 Months Forward
0.8688
0.8674
1.151
1.1529
6 Months Forward
0.8708
0.8693
1.1484
1.1504
Japan (Yen)
0.008518
0.008495
117.3985
117.7163
1 Month Forward
0.008548
0.008525
116.0631
117.3021
3 Months Forward
0.008616
0.008593
116.0631
116.3738
6 Months Forward
0.008724
0.0087
114.6263
114.9425
Switzerland (Franc)
0.7648
0.7652
1.3075
1.3068
1 Month Forward
0.767
0.7674
1.3038
1.3031
3 Months Forward
0.7718
0.7722
1.2957
1.295
6 Months Forward
0.7791
0.7794
1.2835
1.283
Euro
1.2000
1.1906
0.8333
0.8399
Using the table what is the 6-month forward pound–yen cross-exchange rate?
100)
Country
USD equiv.
Currency per USD
Tuesday
Monday
Tuesday
Monday
U.K. (Pound)
1.7368
1.7424
0.5758
0.5739
1 Month Forward
1.7369
1.7425
0.5757
0.5739
3 Months Forward
1.738
1.7434
0.5754
0.5736
6 Months Forward
1.7409
1.7461
0.5744
0.5727
Canada (Dollar)
0.8667
0.8653
1.1538
1.1557
1 Month Forward
0.8674
0.866
1.1529
1.1547
3 Months Forward
0.8688
0.8674
1.151
1.1529
6 Months Forward
0.8708
0.8693
1.1484
1.1504
Japan (Yen)
0.008518
0.008495
117.3985
117.7163
1 Month Forward
0.008548
0.008525
116.0631
117.3021
3 Months Forward
0.008616
0.008593
116.0631
116.3738
6 Months Forward
0.008724
0.0087
114.6263
114.9425
Switzerland (Franc)
0.7648
0.7652
1.3075
1.3068
1 Month Forward
0.767
0.7674
1.3038
1.3031
3 Months Forward
0.7718
0.7722
1.2957
1.295
6 Months Forward
0.7791
0.7794
1.2835
1.283
Euro
1.2000
1.1906
0.8333
0.8399
Using the table, what is 3-month forward premium or discount (expressed as an annual percentage
rate) for the British pound in terms of U.S. dollars?