Tutorial Solutions 4

Powerful Essays
Tutorial solutions 4
QUESTIONS

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

Answer: The forward market involves contracting today for the future purchase or sale of foreign exchange. The forward price may be the same as the spot price, but usually it is higher (at a premium) or lower (at a discount) than the spot price.

PROBLEMS

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

1.3431-1.3436

One-Month

1.3432-1.3442

Three-Month

1.3448-1.3463

Six-Month

1.3488-1.3508

Solution:
One-Month

01-06

Three-Month

17-27

Six-Month

57-72

6. Using Exhibit 5.4, calculate the one-, three-, and six-month forward premium or discount for the Canadian dollar versus the U.S. dollar using American term quotations. assume each month has 30 days. What is the interpretation of your results?

Solution: The formula we want to use is: f = [(F($/CD) - S($/CD))/S($/CD)] x 360/N days

f 30 = [(.9628 - .9629)/.9629] x 360/30 = -.12% f 90 = [(.9624 - .9629)/.9629] x 360/90 = -.21% f 180 = [(.9614 - .9629)/.9629] x 360/180 = -.31%

For simplicity,

The pattern of forward premiums indicates that the Canadian dollar is trading at a discount versus the U.S. dollar. That is, it becomes less expensive to buy a Canadian dollar forward.
Also, the discount increases in magnitude over time.

10. Doug Bernard specializes in cross-rate arbitrage. He notices the following quotes:

Swiss franc/dollar = SFr1.5971/$
Australian dollar/U.S. dollar = A$1.8215/$
Australian dollar/Swiss franc = A$1.1440/SFr

Ignoring transaction costs, does Doug Bernard have an arbitrage opportunity based on these quotes?

If there is an arbitrage opportunity, what steps would he take to make an

arbitrage profit, and how would he profit if he has $1,000,000 available for this purpose.

Note: It does not matter which pair of currencies you choose to compute the implicit cross rate. You will arrive

You May Also Find These Documents Helpful

  • Satisfactory Essays

    TUTORIAL 4

    • 583 Words
    • 14 Pages

    PGDMIS-OPERATIONS MANAGEMENT TUTORIAL FOUR 1. Consider the following transportation problem at Frank Timoney Enterprises in Clifton Park, NY. Find the optimal solution using the stepping-stone method. To From 2. Destination A Destination B Destination C Supply Source 1 8 9 4 72 Source 2 5 6 8 38 Source 3 7 9 6 46 Source 4 5 3 7 19 Demand 110 34 31 175 Solve the following using the NorthWest Corner Rule and the Least Cost Method. What is the optimal Solution? B1 B2 B3 B4 Stock…

    • 583 Words
    • 14 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Tutorial 4

    • 447 Words
    • 3 Pages

    Tutorial 4: Estimations 1. A process producing bricks is known to yield output whose weights are normally distributed with a standard deviation of 0.12lb. A random sample of 40 bricks from a day's output had a mean weight of 4.07lb. (i) Find a 99% confidence interval for the mean weight of all bricks produced on that day. (ii) Estimate the smallest sample size required if the error in estimating the population mean weight of all bricks is to be within  0.03lb with 95% confidence.…

    • 447 Words
    • 3 Pages
    Satisfactory Essays
  • Good Essays

    Tutorial 4

    • 1514 Words
    • 6 Pages

    MAT 2204 Tutorial 4 1. In how many ways can a committee of one president, one vice president, a secretary and a treasurer be chosen from five men and seven women? 2. A committee of four is chosen from five teachers and three mathematicians. In how many ways can this be done so that the committee contains (i) at least one teacher? (ii) at least one teacher and one mathematician? 3. Five children are to be seated on a bench. Find ( i ) how many ways the children can be…

    • 1514 Words
    • 6 Pages
    Good Essays
  • Satisfactory Essays

    Tutorial Solution Week9

    • 946 Words
    • 4 Pages

    BES Tutorial Sample Solutions, S1/13 WEEK 9 TUTORIAL EXERCISES (To be discussed in the week starting May 6) 1. Perform the following hypothesis tests of the population mean. In each case, illustrate the rejection regions on both the Z and ̅ distributions, and calculate the p-value (prob-value) of the test. (a) H0: μ = 50, H1: μ > 50, n = 100, ̅ = 55, σ = 10, α = 0.05 Rejection region: ̅ 50 1.645 . 10⁄√100 Alternatively 10 51.645 50 1.645 ̅ ̅ . √ √100 Since 55 50 5 1.645 .…

    • 946 Words
    • 4 Pages
    Satisfactory Essays
  • Good Essays

    TUTORIAL 10 (27 – 31 OCTOBER) SOLUTION GUIDE Question 1 Henry, Carla and Fred are housepainters. Henry and Carla can paint 100 square metres per hour using a standard paintbrush, while Fred can paint 80 square metres per hour. Any of the three can paint 200 square metres per hour using a roller. (i) If Henry, Carla and Fred have only paintbrushes at their disposal, what is the average productivity (in terms of square metres per painter hour) for the three painters taken as a team? Assume the three…

    • 1516 Words
    • 7 Pages
    Good Essays
  • Good Essays

    Tutorial 1 Solutions

    • 873 Words
    • 4 Pages

    TUTORIAL1 WITH INFORMATION TO SOLUTIONS 1. For most products, higher prices result in a decreased demand, whereas lower prices result in an increased demand. Let d = annual demand for a product in units p = price per unit Assume that firm accepts the following price-demand relationship as being realistic: d = 800 – 10p where p must be between $ 20 and $70. a. How many units can the firm sell at the $ 20 per-unit price? At the $ 70 per-unit price?…

    • 873 Words
    • 4 Pages
    Good Essays
  • Satisfactory Essays

    Tutorial 1 solutions

    • 3778 Words
    • 41 Pages

    ACCY111 TUTORIAL 1 Solutions John Wiley & Sons Australia, Ltd 2012 Page 1 of 19 CHAPTER 1 DECISION MAKING AND THE ROLE OF THE ACCOUNTANT Exercise 1.1 Information for decisions ASHLEY BUTLER Ashley Butler, as the accounts supervisor, should obtain information about the account applicant to ascertain whether or not the person will be able to pay their account. In deciding to open an account, the following would be required: Information requested 1. Customer’s business name, address and contact…

    • 3778 Words
    • 41 Pages
    Satisfactory Essays
  • Satisfactory Essays

    tutorial 4 answers

    • 552 Words
    • 3 Pages

    TUTORIAL 4 – DISCRETE DISTRIBUTIONS Question 1 An experiment consists of picking a card at random from a standard deck of cards and replacing it. If this experiment is performed 12 times, what is the probability that you get: (a) exactly 2 aces; (b) exactly 3 hearts; (c) more than 1 heart. Solution Let n = 12, the no of experiments. (a) Let p = probability of obtaining an ace in an experiment of picking a card at random from a standard deck of cards; and = 4/52 = 1/13…

    • 552 Words
    • 3 Pages
    Satisfactory Essays
  • Good Essays

    Week 4 - Tutorial

    • 641 Words
    • 3 Pages

    Criminal Justice Ethics Week’s 4 Tutorial Doany Will ETHC-232 Professor: Denise Young Criminal Justice Ethics In the general orders or in the personnel manual of virtually every police organization there is language about “ethics” and “integrity.” But what exactly does that mean? Ethics is an easy word to throw around and yet very hard to define. “Police officers are held…

    • 641 Words
    • 3 Pages
    Good Essays
  • Satisfactory Essays

    VIOoPC Tutorial 4

    • 311 Words
    • 3 Pages

    Ms. Amelia Chiang, Ms. Azlina Banu, Ms. Farhanah, Ms.Gurpreet, Ms. Jamie, Ms. Lau Mei Chien, Ms. Lily Lee, Ms. Nabilah, Mr. Ng Sweet Kin, Ms. Phang Ying Ning, Ms. Precilla, Ms. Rachel Tham, Ms. Rajalakshmi, Mr. Sivabalan, Ms. Tan Lee Siew Tutorial 4: Chapter 4 States of Matter 1. Hydrogen gas occupies a 3.60 L container at 760 torr. Calculate the volume it occupies at 2.25 atm at a constant temperature. (1.6 L) 2. Nitrogen gas contained in a 1.85 L vessel exerts a pressure of 1.00 atm at 0 oC…

    • 311 Words
    • 3 Pages
    Satisfactory Essays