国际金融题库

ANSWER. The three-month forward rate is SFr1 = $0.8192. 1.d. Is the Swiss franc selling at a forward premium or discount? ANSWER. At a forward premium. 1.e. What is the 90-day forward discount or premium on the Swiss franc?
ANSWER. The 90-day forward premium is 60 points (pips), which translates into an annualized forward premium of 2.95% (4 * (0.8192 – 0.8132)/0.8132). 2. What risks confront dealers in the foreign exchange market? How can they cope with these risks? ANSWER. Foreign exchange dealers must cope with exchange risk, because of the foreign currency positions they take. They also bear credit risk since the counterparties to the trades they enter into may not honor their obligations. They can cope with currency risk by using forward contracts and currency options, widening their bid-ask quotes, and limiting the position they are willing to take in any one currency. They can limit credit risk by restricting the position they are willing to take with any one customer and by setting margin requirements that vary with the riskiness of their customers (banks will generally not do this). 3. Suppose a currency increases in volatility. What is likely to happen to its bid-ask spread? Why? ANSWER. As a currency’s volatility increases, it becomes riskier for traders to take positions in that currency. To compensate for the added risks, traders quote wider bid-ask spreads. 4. Who are the principal users of the forward market? What are their motives? ANSWER. The principal users of the forward market are currency arbitrageurs, hedgers, importers and exporters, and speculators. Arbitrageurs wish to earn risk-free profits; hedgers, importers and exporters want to protect the home currency values of various foreign currency-denominated assets and liabilities; and speculators actively expose themselves to exchange risk to benefit from expected movements in exchange rates.
SUGGESTED ANSWERS TO “ARBITRAGING CURRENCY CROSS RATES” 1. Do any triangular arbitrage opportunities exist among these currencies? Assume that any deviations from the theoretical cross rates of 5 points or less are due to transaction costs. ANSWER. Unfortunately, there are no shortcuts here. It is necessary to try out each possibility. Here are the 4 arbitrage opportunities that I found. If anyone finds any additional ones, please contact me at my email address: ashapiro@. 1) Convert dollars to SFr, SFr to DKr, and DKr back to dollars. The profit per dollar equals $1 * 1.2250 * 4.5570/5.5485 - $1 = $0.0061. 2) Convert dollars to DKr, DKr to pounds, and pounds back to dollars. The profit per dollar equals $1 * 5.5475 * 0.0910/.5012 - 1 = $0.0072. 3) Convert dollars to SFr, SFr to pounds, and pounds back to dollars. The profit per dollar equals $1 * 1.2250 * 0.4122/.5012 - 1 = $0.0055. 4) Convert dollars to yen, yen to pound, and pound back to dollars. The profit per dollar equals $1 * 121.33 * 0.0042/0.5012 - 1 = $0.0167. 2. Compute the profit from a $5 million transaction associated with each arbitrage opportunity. ANSWER. All answers are based on rounding the arbitrage profit per dollar to the fourth decimal place. 1) The profit for the $/SFr/DKr/$ arbitrage will be $5,000,000 * 0.0061 = $30,500. 2) The profit from the $/DKr/£/$ arbitrage will be $5,000,000 * 0.0072 = $36,000. 3) The profit from the $/£/DKr/$ arbitrage will be $5,000,000 * 0.0055 = $27,500. 4) The profit from the $/¥/DKr/$ arbitrage will be $5,000,000 * 0.0167 = $83,500.
CHAPTER 6: THE FOREIGN EXCHANGE MARKET
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CHAPTER 6 THE FOREIGN EXCHANGE MARKET
Chapter 6 is basically institutional in nature, although it opens by discussing the rationale for a foreign exchange market, namely to facilitate the transfer of purchasing power denominated in one currency to purchasing power denominated in another currency. Like other financial markets, the foreign exchange market facilitates trading in financial assets by lowering transaction costs. The balance of the chapter provides the institutional framework of the foreign exchange market, both spot and forward transactions. It discusses pricing conventions, costs, size, and participants, and goes through some of the mechanics of foreign exchange trading. I always illustrate this subject matter with quotes found in The Wall Street Journal. Every issue of the Journal (Section C) contains a story on the foreign exchange market, providing spot quotations for the Canadian dollar, pound sterling, Swiss francs, euros, and Japanese yen. The financial section also carries a more extensive listing of spot and forward prices for about forty currencies.