United States Dollar and Arbitrage Opportunity

Topics: United States dollar, Foreign exchange market, ISO 4217 Pages: 4 (900 words) Published: March 30, 2013
2. What is the difference between the retail or client market and the wholesale or interbank market for foreign exchange?

3. Who are the market participants in the foreign exchange market?

5. What is meant by a currency trading at a discount or at a premium in the forward market?

6. Why does most interbank currency trading worldwide involve the U.S. dollar?

7. Banks find it necessary to accommodate their clients’ needs to buy or sell FX forward, in many instances for hedging purposes. How can the bank eliminate the currency exposure it has created for itself by accommodating a client’s forward transaction?

8. A CD/$ bank trader is currently quoting a small figure bid-ask of 35-40, when the rest of the market is trading at CD1.3436-CD1.3441. What is implied about the trader’s beliefs by his prices?

9. What is triangular arbitrage? What is a condition that will give rise to a triangular arbitrage opportunity?

1. Using the American term quotes from Exhibit 5.4, calculate a cross-rate matrix for the euro, Swiss franc, Japanese yen, and the British pound so that the resulting triangular matrix is similar to the portion above the diagonal in Exhibit 5.6.

4. Restate the following one-, three-, and six-month outright forward European term bid-ask quotes in forward points. Spot1.3431-1.3436

8.A bank is quoting the following exchange rates against the dollar for the Swiss franc and the Australian dollar: SFr/$ = 1.5960-70
A$/$ = 1.7225-35
An Australian firm asks the bank for an A$/SFr quote. What cross-rate would the bank quote?

9. Given the following information, what are the NZD/SGD currency against currency bid-ask quotations?
American TermsEuropean Terms
Bank QuotationsBidAskBidAsk
New Zealand dollar .7265 .72721.37511.3765
Singapore dollar .6135 .61401.62871.6300
10.Doug Bernard...
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