A foreign exchange dealer in London normally provides quotes for spot, one month, three months, and six months. When you ask over the telephone for current quotations for the Argentine peso (ARS) against the U.S. dollar , you hear: “4.0040 to 200, 120 to 110, 350 to 312, 680 to 620”

Answer the following based on the above quotation:

a) What would you receive in dollars if you sold ARS 1,000,000 spot? (5 Marks)

b) What would it cost you to purchase ARS 15,000,000 forward three months for dollars? When would you make payment? (5 Marks)

c) In New York, three – month treasury bills yield 8% per annum. Using offer quotes only (for simplicity), what should be the yield on Argentine three – month bills? (5 Marks)

d) Verify your answer to part (c) with a hypothetical investment of $10,000,000 for three months in both countries. Use only offer quotes for simplicity and ignore charges and taxes. (5 Marks)

Answer rating: 100% (QA)

a Selling ARS 1000000 spot The given quote for the Argentine peso ARS against the US dollar is 40040 to 200 for the spot rate This means I can sell AR... View the full answer